23152 Federal Register / Vol. 75, No. 84 / Monday, May 3, 2010 / Rules and Regulations 

1Each Bank is generally referred to by the name 

of the city in which it is located. The twelve Banks 

are located in: Boston, New York, Pittsburgh, 

Atlanta, Cincinnati, Indianapolis, Chicago, Des 

Moines, Dallas, Topeka, San Francisco, and Seattle. 

List of Subjects 

7 CFR Part 360 

Imports, Plants (Agriculture), 

Quarantine, Reporting and 

recordkeeping requirements, 

Transportation, Weeds. 

7 CFR Part 361 

Agricultural commodities, Imports, 

Labeling, Quarantine, Reporting and 

recordkeeping requirements, Seeds, 

Vegetables, Weeds. 

PART 360—NOXIOUS WEED 

REGULATIONS 

PART 361—IMPORTATION OF SEED 

AND SCREENINGS UNDER THE 

FEDERAL SEED ACT 

■ Accordingly, we are adopting as a 

final rule, without change, the interim 

rule that amended 7 CFR parts 360 and 

361 and that was published at 74 FR 

53397-53400 on October 19, 2009. 

Done in Washington, DC, this 27th day 

of April 2010. 

Kevin Shea 

Acting Administrator, Animal and Plant 

Health Inspection Service. 

[FR Doc. 2010–10282 Filed 4–30–10; 8:45 am] 

BILLING CODE 3410–34–S 

FEDERAL HOUSING FINANCE BOARD 

12 CFR Parts 985 and 989 

FEDERAL HOUSING FINANCE 

AGENCY 

12 CFR Parts 1273 and 1274 

RIN 2590–AA30 

Board of Directors of Federal Home 

Loan Bank System Office of Finance 

AGENCY: Federal Housing Finance 

Agency. 

ACTION: Final Rule. 

SUMMARY: Governed by the Federal 

Housing Finance Agency’s (FHFA) 

regulations, the Federal Home Loan 

Bank System’s (Bank System) Office of 

Finance issues debt (‘‘consolidated 

obligations’’) as agent for the Federal 

Home Loan Banks (Banks) on which the 

Banks are jointly and severally liable 

and publishes combined financial 

reports on the Banks so that members of 

the Bank System, investors in the 

consolidated obligations, and other 

interested parties can assess the strength 

of the Bank System that stands behind 

them. The Office of Finance (OF) is 

governed by a board of directors, the 

composition and functions of which are 

determined by FHFA’s regulations. 

FHFA’s experience with the Bank 

System and with the OF’s combined 

financial reports during the recent 

period of market stress suggests that the 

OF and the Bank System could benefit 

from a reconstituted board and 

strengthened audit committee. This 

regulation is intended to achieve that 

end. 

DATES: This rule is effective June 2, 

2010. 

FOR FURTHER INFORMATION CONTACT: 

Joseph A. McKenzie, 202–408–2845, 

Division of Federal Home Loan Bank 

Regulation, Federal Housing Finance 

Agency, 1625 Eye Street, NW., 

Washington, DC 20006; Neil Crowley, 

Deputy General Counsel, 202–343–1316; 

or Thomas E. Joseph, Senior AttorneyAdvisor, 202–414–3095, Office of 

General Counsel, Federal Housing 

Finance Agency, Fourth Floor, 1700 G 

Street, NW., Washington, DC 20552. The 

telephone number for the 

Telecommunications Device for the Deaf 

is 800–877–8339. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Creation of the Federal Housing 

Finance Agency and Recent Legislation 

Effective July 30, 2008, the Housing 

and Economic Recovery Act of 2008 

(HERA), Public Law 110–289, 122 Stat. 

2654, transferred the supervisory and 

oversight responsibilities of the Office of 

Federal Housing Enterprise Oversight 

(OFHEO) over the Federal National 

Mortgage Association (Fannie Mae) and 

the Federal Home Loan Mortgage 

Corporation (Freddie Mac) (collectively, 

the Enterprises), the oversight 

responsibilities of the Federal Housing 

Finance Board (FHFB or Finance Board) 

over the Banks and the Office of Finance 

(OF) (which acts as the Banks’ fiscal 

agent), and certain functions of the 

Department of Housing and Urban 

Development to FHFA, a new 

independent executive branch agency. 

See id. at section 1101, 122 Stat. 2661– 

62. FHFA is responsible for ensuring 

that the Enterprises and the Banks 

operate in a safe and sound manner, 

including that they maintain adequate 

capital and internal controls, that their 

activities foster liquid, efficient, 

competitive, and resilient national 

housing finance markets, and that they 

carry out their public policy missions 

through authorized activities. See id. at 

section 1102, 122 Stat. 2663–64. The 

Enterprises, the Banks, and the OF 

continue to operate under regulations 

promulgated by OFHEO and the FHFB 

until FHFA issues its own regulations. 

See id. at sections 1302, 1313, 122 Stat. 

2795, 2798. 

B. The Bank System Generally 

The twelve Banks are 

instrumentalities of the United States 

organized under the Federal Home Loan 

Bank Act (Bank Act).1 See 12 U.S.C. 

1423, 1432(a). The Banks are 

cooperatives; only members of a Bank 

may purchase the capital stock of a 

Bank, and only members or certain 

eligible housing associates (such as state 

housing finance agencies) may obtain 

access to secured loans, known as 

advances, or other products provided by 

a Bank. See 12 U.S.C. 1426(a)(4), 

1430(a), 1430b. Each Bank is managed 

by its own board of directors and serves 

the public interest by enhancing the 

availability of residential mortgage and 

community lending credit through its 

member institutions. See 12 U.S.C. 

1427. Any eligible institution (generally 

a federally insured depository 

institution or state-regulated insurance 

company) may become a member of a 

Bank if it satisfies certain criteria and 

purchases a specified amount of the 

Bank’s capital stock. See 12 U.S.C. 1424; 

12 CFR part 1263. 

As government-sponsored enterprises 

(GSEs), the Banks are granted certain 

privileges under federal law. In light of 

those privileges and their status as 

GSEs, the Banks typically can borrow 

funds at spreads over the rates on U.S. 

Treasury securities of comparable 

maturity lower than most other entities. 

The Banks pass along a portion of their 

GSE funding advantage to their 

members—and ultimately to 

consumers—by providing advances and 

other financial services at rates that 

would not otherwise be available to 

their members. Consolidated obligations 

(COs), consisting of bonds and discount 

notes, are the principal funding source 

for the Banks. The OF issues all COs on 

behalf of the twelve Banks. Although 

each Bank is primarily liable for the 

portion of consolidated obligations 

corresponding to the proceeds received 

by that Bank, each Bank is also jointly 

and severally liable with the other 

eleven Banks for the payment of 

principal and interest on all COs. See 12 

CFR 966.9. 

C. The OF 

The OF was one of a number of joint 

Bank offices established by regulation 

by the former Federal Home Loan Bank 

Board (FHLBB), a predecessor agency to 


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2Public Law 101–73, 103 Stat. 183 (Aug. 9, 1989). 

3As it existed in 1992, section 11(c) of the Bank 

Act provided the Finance Board authority to issue 

the debt on which the Banks were jointly and 

severally liable. 12 U.S.C. 1431(c)(1992). HERA 

recently amended this provision and removed 

authority from the regulator to issue such debt on 

behalf of the Banks and provided the OF as agent 

for the Banks with authority to issue the COs. See 

section 1204(3)(B), Pub. L. 110–289, 122 Stat. 2786. 4Pub. L. 106–102, 113 Stat. 1338 (Nov. 12, 1999). 

5Terms would have been staggered such that no 

more than one Independent Director’s seat would 

be scheduled to become vacant in any year. 

FHFA. See 65 FR 324, 326 (Jan. 4, 2000). 

The OF was originally formed from two 

other joint Bank Offices, the Office of 

System Finance and the Office of Fiscal 

Agent. Among other things, OF was 

assigned the duties previously vested in 

the Fiscal Agent which included 

facilitating the issuance of COs. Id. 

In 1989, as part of the amendments 

made to the Bank Act by the Financial 

Institutions Reform, Recovery, and 

Enforcement Act (FIRREA),2 all joint 

offices of the Bank System other than 

the OF were abolished. The FHLBB was 

also abolished and its regulatory 

authority over the Bank System, 

including the OF, was transferred to the 

Finance Board. The FHLBB’s 

regulations were also transferred to the 

Finance Board. Id. In 1992, the Finance 

Board reorganized the OF as fiscal agent 

of the Finance Board for issuing COs 

under section 11(c) of the Bank Act, and 

set forth other duties for OF.3 See 57 FR 

11429 (Apr. 3, 1992) (adopting 12 CFR 

part 941). The regulation also instituted 

a three-member board of directors for 

the oversight and management of the 

OF, made up of two Bank presidents 

and a private United States citizen with 

demonstrated expertise in financial 

markets. Id. 

In January 2000, the Finance Board 

proposed changes to its regulations to 

alter how COs were issued under 

section 11 of the Bank Act, reorganize 

the OF and its board of directors, and 

expand the duties of the OF, including 

assigning the OF the duty to prepare the 

Bank System combined annual and 

quarterly financial reports. See 65 FR 

324. As proposed, the January 2000 

regulation transferred authority for 

issuance of the Bank COs from the 

Finance Board, which had been issuing 

debt pursuant to then-existing authority 

under section 11(c) of the Bank Act, to 

the Banks themselves pursuant to 

authority under section 11(a) of the 

Bank Act and subject to the 

requirement, among other things, that 

all such debt issued by the Banks be the 

joint and several obligations of all 

twelve Banks and be issued through the 

OF as their agent. Id. Under the 

proposed regulation, the Finance Board 

retained the option to issue COs itself 

under section 11(c) of the Bank Act at 

any point in the future. 

The Finance Board also believed that 

‘‘[a]s a natural and necessary adjunct to 

the issuance of COs, the Banks also 

should be responsible for the 

preparation of the disclosure documents 

that facilitate CO issuance and for the 

periodic combined financial statements 

for the Bank System.’’ Id. at 325. The 

Finance Board therefore proposed that 

the OF, as the only joint Bank System 

office and existing agent for CO 

issuance, be assigned the duty of 

preparing the Bank System’s combined 

financial reports. Id. The Finance Board 

also proposed to codify disclosure 

standards in the regulation, many of 

which had been set forth in a Finance 

Board policy statement. Other duties 

related to debt issuance and 

management were also proposed to be 

assigned to the OF. 

In light of the expanded duties 

assigned to the OF as well as 

amendments to the Bank Act that had 

recently been made by the GrammLeach-Bliley Act (GLB Act) of 1999,4 the 

Finance Board also thought it was 

appropriate to alter both the size and 

composition of the OF board. Id. at 326. 

The Finance Board had two main goals 

in proposing its changes. First, it 

wanted to build on the governance 

structure in the Bank Act by which the 

Banks should be provided greater 

autonomy to manage their affairs. 

Second, it wanted to assure each Bank 

had representation on the OF board to 

help achieve operational goals and 

wanted to assure that the OF board itself 

had directors with experience and 

qualification to help the OF meet the 

evolving needs of the Bank System. 

After consideration of the comments 

on the proposed regulation, the Finance 

Board adopted many of the changes 

including those authorizing the Banks to 

issue COs under section 11(a) of the 

Bank Act and assigning to the OF the 

function of preparing the Bank System’s 

combined financial reports, along with 

additional duties. See 65 FR 36290 (June 

7, 2000) (adopting among other parts 12 

CFR parts 966 and 985). The Finance 

Board did not, however, adopt the 

proposed changes to the OF board 

structure or composition. Instead, the 

new regulation incorporated the prior 

three-person board structure. The 

Finance Board also specified some 

additional duties for the OF board 

consistent with the additional functions 

that had been assigned to the OF over 

the years. Since the 2000 rulemaking, no 

significant changes to the regulations 

governing the OF have been proposed. 

D. Proposed Rule 

On August 4, 2009, FHFA published 

a proposed rule for comment which 

would have altered the structure, 

composition and duties of the OF board 

of directors and its audit committee. See 

74 FR 38564. As proposed, the rule also 

would have transferred the current OF 

board regulations, as well as regulations 

related to Banks’ financial statements, 

respectively from parts 985 and 989 of 

title 12 to parts 1273 and 1274 of Title 

12. 

The proposal would have expanded 

the OF board of directors to between 

fifteen and seventeen members, 

consisting of the twelve Bank presidents 

and from three to five Independent 

Directors (as defined under the rule). 

The proposed rule also would have 

created an Audit Committee for the OF 

board made up of the Independent 

Directors. The Audit Committee would 

have been assigned the duty to oversee 

the audit of the OF and the preparation 

of the Bank System’s combined 

financial report. To help ensure that 

information from the Banks could be 

combined in a meaningful and accurate 

fashion in the combined financial 

report, the proposed rule also would 

have empowered the OF Audit 

Committee to require the Banks to 

establish common accounting policies 

and procedures with regard to 

information submitted to the OF. As 

with the current regulation, the 

proposed rule also set forth standards 

for the combined financial reports. The 

proposed rule addressed the duties of 

the OF board of directors generally, 

although it would have carried over 

many of the provisions in the current 

regulations with regard to the OF 

board’s duties. 

Under the proposed rule, FHFA 

would have selected the initial 

Independent Directors for staggered 

terms of up to five years.5 Each Bank 

was given the right to nominate one 

candidate for appointment. Thereafter, 

Independent Directors would have been 

elected by the full board of directors for 

five-year terms, subject to the right of 

FHFA to review and object to a 

particular Independent Director’s 

election, reserving to FHFA the right to 

appoint Independent Directors if it 

thought the OF board had not elected 

suitably qualified persons. Under the 

proposed rule, FHFA also would have 

appointed the first chairman of the 

reconstituted OF board from among the 

Independent Directors and a vice 

chairman from among all directors. 


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6Additional comments were received on the 

proposed qualifications for an Independent 

Director. These comments are discussed below in 

the section addressing § 1273.7, which sets out the 

qualifications for Independent Directors. 

Thereafter, the chairman would be 

elected by the full board of directors 

from among the Independent Directors 

and the vice chairman would be elected 

by the board from among all directors. 

The proposed rule also set standards for 

a quorum for board meetings, 

established a minimum number of board 

meetings per year, and addressed issues 

related to board committees and other 

matters such as compensation and 

indemnification of directors. 

The proposed rule also would have 

readopted current regulations 

addressing the financial statements for 

the Banks, subject to technical 

corrections made necessary by proposed 

changes in the composition and duties 

of the OF Audit Committee. See 12 CFR 

part 989. The proposed rule also would 

have made changes to part 989 to reflect 

the fact that the Banks had registered 

equity securities with the Securities and 

Exchange Commission subsequent to 

the adoption of these requirements. 

The proposed rule originally had a 

comment period of 60 days, which was 

set to close on October 5, 2009. This 

comment period was later extended for 

an additional 30 days. See 74 FR 50926 

(Oct. 2, 2009). FHFA received 23 

comment letters on the proposed rule. 

These comments are discussed below. 

E. Considerations of Differences 

Between the Banks and the Enterprises 

Section 1201 of HERA (codified at 12 

U.S.C. 4513(f)) requires the Director, 

when promulgating regulations relating 

to the Banks, to consider the following 

differences between the Banks and the 

Enterprises: Cooperative ownership 

structure; Mission of providing liquidity 

to members; Affordable housing and 

community development mission; 

capital structure; and Joint and several 

liability. The Director also may consider 

any other differences that are deemed 

appropriate. In preparing this final 

regulation, FHFA considered the 

differences between the Banks and the 

Enterprises as they relate to the above 

factors, and determined that the rule is 

appropriate. 

II. The Final Rule 

A. Comments 

FHFA received 23 comment letters on 

the proposed rule from the Banks, the 

OF, trade associations, and individual 

representing members. The OF along 

with eleven of the twelve Banks 

submitted a single joint comment letter, 

while the remaining Bank submitted its 

own comment letter. FHFA also 

received comments from six trade 

associations that represent Bank System 

members, as well as fifteen letters from 

individuals representing member 

institutions. Copies of the comments are 

available at FHFA’s Web site, http:// 

www.fhfa.gov. 

The comments generally supported 

the proposed expansion of the OF board 

of directors to include all twelve Bank 

presidents and additional independent 

directors. The comments were also 

generally supportive of the proposal to 

establish for the OF an Audit Committee 

made up of Independent Directors. The 

commenters opposed, however, some of 

the specific powers and duties assigned 

to the Audit Committee under the 

proposed rule, especially those 

provisions mandating the Audit 

Committee to require the Banks to adopt 

common accounting policies. A number 

of commenters felt that some of the 

duties and authority assigned to the 

Audit Committee should be vested in 

the full OF Board or were inconsistent 

with the role and authority of the 

individual Banks’ boards of directors 

and audit committees. 

Commenters also felt that the duties 

that would be assigned to either the OF 

board of directors or its Audit 

Committee should not be described by 

reference to the part 917 rules. The 

commenters noted that the part 917 

rules addressed the duties and authority 

of the individual Banks’ board of 

directors and that the relationship of the 

OF to the Banks was different from the 

relationship of a Bank to its members. 

A number of commenters suggested that 

the duties of the OF board of directors 

or Audit Committee be limited 

specifically to those enumerated in the 

rule. Some commenters also believed 

that the proposed rule gave FHFA too 

much authority to appoint Independent 

Directors and to overrule decisions of 

the OF board of directors and urged 

FHFA to change these provisions. 

Commenters also made specific 

suggestions of wording changes in a 

number of proposed provisions of the 

rule that they believed would clarify the 

meaning of the provision or otherwise 

improve the rule. 

B. Final Rule Provisions 

FHFA has considered all the 

comments in developing the final rule. 

It has accepted a number of the 

suggestions made by commenters and, 

as discussed below, has made changes 

in the final rule as a result. FHFA 

believes, however, that the basic 

approach of the proposed rule remains 

correct, as do its underlying reasons for 

initially proposing the changes. FHFA 

views the changes in this final rule as 

an important step in assisting the Banks 

to coordinate among themselves the 

process of providing the OF with 

information to prepare the Bank 

System’s combined financial reports 

and assisting the OF otherwise to obtain 

information where the coordination 

process has not worked well. Most 

importantly, FHFA continues to believe 

that high-quality combined financial 

reports play an important role in the 

ability of the Banks to access financial 

markets and issue debt and that they 

provide financial markets with needed 

information about the Bank System. 

Therefore, much of the proposed rule is 

carried over into the final regulation, 

albeit often with some small changes in 

language to clarify the extent and scope 

of the provision in question. Comments, 

and the changes that FHFA has made to 

the rule, are discussed in more detail 

below in the section describing each 

final rule provision. 

Section 1273.1—Definitions 

FHFA has adopted the definitions as 

proposed. FHFA did not receive any 

comments that addressed the proposed 

definitions directly, although one 

commenter suggested using a term other 

than ‘‘Independent Director’’ since the 

term is used somewhat differently under 

the rule than in the general corporate 

governance context. FHFA has 

considered this comment, but is 

continuing to use the term Independent 

Director. The qualifications for 

Independent Director are set forth in the 

rule. The definition of this term makes 

clear that the term means a party that 

meets such qualifications, and its use is 

not intended to imply any other 

meaning. Thus, FHFA has not made the 

requested change.6

Section 1273.2—Authority of the OF 

FHFA has adopted this section as 

proposed. The provision, as proposed, 

was similar to § 985.2 which had 

previously set forth the OF authority. 

The proposed provision reflected the 

fact that HERA amended section 11 of 

the Bank Act so that the regulator was 

no longer authorized to issue COs. See 

Public Law 110–289, Div. A, Title II, 

section 1204(3) (amending 12 U.S.C. 

1431(b) and (c)). Thus, § 1273.2 as 

adopted, unlike former § 985.2, does not 

provide that the OF may act as agent for 

FHFA in the issuance of COs. 

Section 1273.3—Functions of the OF 

FHFA has made a number of 

clarifying changes in the final version of 

§ 1273.3, which describes the general 

functions of the OF, in response to 


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7FHFA is adopting a similar change to wording 

in § 1273.6(a) for the same reasons discussed here. 

8FHFA is adopting a similar change to the 

language in § 1273.6(b)(2) for the same reasons 

discussed here. 9 12 U.S.C. 4501 et seq. 

comments on the proposed rule. These 

changes do not alter the scope of the 

proposed provision, but FHFA believes 

that the changes will make its original 

intent more clear. 

First, FHFA has altered § 1273.3(a) to 

provide that, in the offering, issuance 

and servicing of COs, the OF is acting 

as agent for the Banks. As originally 

proposed, the provision merely stated 

that the OF was agent. Some comments 

indicated that language in this provision 

and in § 1273.6 should make clear that 

the OF administers these functions on 

behalf of the Banks but is not the issuer 

of debt and does not enjoy independent 

authority to undertake these activities. 

FHFA believes that the change in the 

final rule, along with the description in 

§ 1273.2 that OF acts as agent for the 

Banks makes clear that the OF is not 

acting independently of the Banks in 

these activities. Moreover, the language 

in § 1273.3(a) now closely follows the 

language in section 11(b) and (c) of the 

Bank Act, as amended by HERA, which 

states that ‘‘the Office of Finance as 

agent for the Banks may issue’’ 

consolidated Bank debentures or 

bonds.7

Second, FHFA has changed 

§ 1273.3(b) to clarify that, in preparing 

the combined financial reports, the OF 

shall apply consistent accounting 

policies and procedures as provided 

under § 1273.9(b). Commenters urged 

that the reference to ‘‘consistent 

accounting policies and procedures’’ 

should be removed from this section, 

and from § 1273.6(b)(2), because the 

references were confusing and raised 

issues as to whether the language 

created a ‘‘consistency’’ requirement 

beyond or in addition to that set forth 

in § 1273.9(b). FHFA believes that the 

change in the language makes clear that 

language in this section is referencing 

§ 1273.9(b) and is not creating a 

‘‘consistency’’ requirement independent 

or separate from that under § 1273.9(b). 

The provision makes clear, however, 

that the OF has the duty to apply 

policies adopted under § 1273.9(b) in 

preparing the Bank System combined 

financial reports.8

Commenters also asked that § 1273.3 

be changed to specifically limit the OF’s 

functions to those listed in the section. 

FHFA sees no need for this change. As 

now written, the provisions clearly 

delineate the OF functions, and FHFA 

does not believe the rule as adopted is 

vague or will be subject to expansive 

interpretation. 

Section 1273.4—FHFA Oversight 

As proposed, the provision would 

have carried over Finance Board 

regulation § 985.5 with minor technical 

changes. It also would have added a 

new paragraph (c) that provided that 

FHFA would determine whether a 

combined Bank System annual or 

quarterly financial report complied with 

the standards of the part 1273 

regulations, a provision that in scope 

and content was basically the same as 

Finance Board rule § 985.6(b)(5). One 

commenter noted that the ramifications 

of this proposed section were unclear 

and was not sure why the section was 

included in the regulation. The 

commenter asked that the section be 

removed or expanded to better explain 

its purpose. 

FHFA disagrees that the provision is 

unclear. As proposed, the provision 

described FHFA’s general oversight 

authority with regard to the OF, and 

provided more specific statements about 

FHFA’s examination of the OF and its 

oversight of the combined financial 

reports. FHFA agrees that, because of 

revisions made by HERA the provision 

needs revision from what was proposed. 

Prior to HERA, the Bank Act did not 

clearly delineate the regulator’s 

authority over the OF. HERA, however, 

added provisions to the Bank Act and 

the Federal Housing Enterprises 

Financial Safety and Soundness Act of 

1992 9 which more clearly define this 

authority. Paragraph (a) therefore has 

been changed to make specific reference 

to FHFA regulatory authority over the 

OF under these statutes. 

Section 1273.5—Funding of the OF 

As proposed, § 1273.5 set forth the 

Banks’ responsibility for jointly funding 

the OF and the process for, and other 

requirements related to, this funding. 

The rule, as proposed, carried over most 

of the provisions that had been in 

Finance Board regulation § 985.5. FHFA 

proposed certain changes to the Finance 

Board requirements, however. Most 

significantly, the proposed rule allowed 

that each Bank’s pro rata share of the 

OF’s expenses could be calculated by 

any reasonable formula set by the OF 

Board of Directors, subject to FHFA’s 

review and right to require the OF to 

make changes to that formula. By 

contrast, under the Finance Board’s 

regulation, the formula was specified in 

the rule, although the OF board retained 

the right to implement an alternative 

funding formula with the Finance 

Board’s approval. 

FHFA received one comment that was 

generally supportive of the approach in 

the proposed rule for establishing the 

method of calculating each Bank’s share 

of the OF’s funding. Another commenter 

believed, however, that FHFA did not 

need to reserve authority to require the 

OF board of directors to change the 

formula. The commenter stated that the 

rule required that any formula be 

reasonable and that FHFA maintained 

its general oversight and enforcement 

authority to enforce this requirement so 

that the agency could take action if the 

OF board of directors did not adopt a 

reasonable approach to calculating each 

Bank’s share of the OF’s expenses. 

FHFA considered this comment 

asking for a change to the provision but 

decided not to alter the proposed 

approach to establishing the funding 

formula. FHFA believes the approach in 

§ 1273.5 will provide greater flexibility 

than the approach in the Finance Board 

regulation while maintaining regulatory 

oversight to make sure any formula 

remains fair to all Banks and provides 

for adequate funding of the OF. By 

removing from the rule a specific 

formula for calculating each Bank’s 

share of the OF expenses and the 

requirement that the OF Board of 

Directors obtain pre-approval from 

FHFA for any change to such formula, 

§ 1273.5 will allow the OF board of 

directors to take action in response to 

changed conditions while allowing 

FHFA to intervene quickly if needed. 

Thus, FHFA is adopting § 1273.5 as 

proposed. 

Section 1273.6—Debt Management 

Duties of the OF 

Proposed § 1273.6 described the debt 

management duties of the OF, and these 

duties substantively remained similar to 

those set forth in Finance Board 

regulation § 985.6. As indicated in the 

notice of proposed rulemaking, 

however, FHFA proposed certain 

changes to the standards governing the 

preparation of the combined financial 

report. These proposed changes were 

needed, among other reasons, to 

conform the duties in this section to 

new responsibilities proposed for the 

Audit Committee with regard to 

ensuring consistency of information 

provided by the Banks for use in the 

combined financial reports. See 74 FR at 

38566, 38567. As already discussed, 

FHFA received comments on certain 

aspects of proposed § 1273.6 and has 

made clarifying changes to the proposed 

language similar to changes made to 

proposed language in § 1273.3. See 

notes 7 and 8, supra. 


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FHFA also received comments asking 

that it alter § 1273.6(b)(4) so that the 

deadline for publication of the 

combined financial report be 21 days 

after the Banks’ filing deadline with the 

SEC. The commenters indicated that 

this would give the OF sufficient time 

to complete the combined reports after 

each Bank finalized its reporting to the 

SEC. After considering this request, 

FHFA is not altering the deadline for 

publication of the quarterly and annual 

combined financial reports. The Bank 

System is one of the largest nongovernmental issuers of debt in the 

world, with the level of outstanding COs 

approaching $1 trillion. The combined 

financial report is an important and 

convenient source of information for 

investors and other parties interested in 

the Bank System and Bank System debt. 

FHFA believes that timely publication 

of the combined financial report is 

important to the Banks’ continued 

access to financial markets. Therefore, 

the combined reports are as important, 

if not more so, than the individual Bank 

reports. FHFA, therefore, expects that 

the OF and the Banks will take whatever 

steps are necessary to file the combined 

financial reports on the schedule set 

forth in SEC rules for the individual 

Banks. Further, given the limited nature 

of the Banks’ business lines—advances, 

and in some cases acquired member 

assets—and the limited universe of their 

investment activities, FHFA also thinks 

the deadlines set forth in the rule are 

reasonable. 

With regard to the requirements for 

delivering copies of the combined 

reports to the Banks and Bank members 

also found in § 1273.6(b)(4), FHFA 

confirms that OF may continue to rely 

on Finance Board Regulatory 

Interpretation 2007–RI–01 (Jan. 19, 

2007), which sets forth terms and 

conditions for the electronic 

distribution of these financial reports, to 

meet these requirements. 

Other commenters suggested that 

FHFA modify § 1273.6 to give the OF 

Board of Directors authority to limit 

issuance of COs by any Bank or Banks 

to enforce OF policies. While the OF 

board has delegated to OF’s 

management the authority to prohibit or 

redirect issuance of COs because of 

market reasons, the OF does not 

currently enjoy the power to prohibit 

the issuance of debt to enforce specific 

policies. FHFA, therefore, has carefully 

considered making these changes but 

has decided not to do so at this time 

because it does not believe such changes 

are necessary to achieve the goals of this 

final rule. Under rules adopted herein 

(and carried over from the Finance 

Board regulations), the Banks are 

required to provide the OF with 

information in form and timeframes set 

forth by the OF to facilitate the 

preparation of the combined financial 

reports. See 12 CFR 1274.3 (as adopted 

herein). Under the assessment formula 

approved by FHFA in February 2009, a 

Bank that fails to meet a deadline for the 

submission of information to OF can be 

subject to a special assessment. Thus, 

the Banks could be subject to 

enforcement and other actions if they 

fail to comply with OF policies with 

regard to submission of information. 

Commenters also suggested that 

§ 1273.6 be modified to give the OF 

authority to impose appropriate limits 

on any Bank’s or the Bank System’s 

exposure to risk as necessary to 

facilitate the issuance of COs. Assigning 

the OF risk management duties of the 

type suggested would go beyond the 

current scope of the OF’s duties, and 

FHFA does not wish to take such a step 

at this time. 

FHFA, however, intends to monitor 

how the OF board, and its Audit 

Committee, implement the changes 

being adopted at this time, and may 

consider proposing changes along the 

lines suggested in these comments if it 

believes this type of authority needs to 

be granted to the OF board to achieve 

the goals of this final rule. 

Section 1273.7—Structure of the OF 

Board of Directors 

Commenters generally supported the 

basic structure of having an OF board of 

directors made up of the twelve Bank 

presidents and some Independent 

Directors, but provided a number of 

comments about specific aspects of this 

section. As discussed below, FHFA 

made a number of changes to the 

provisions as a result of these comments 

and made some other changes to clarify 

the meaning of some provisions in this 

section. 

In response to comments, FHFA 

clarified language in § 1273.7(a)(1) to 

state that if a Bank presidency becomes 

vacant, the person designated by the 

Bank’s board of directors to fill 

temporarily the duties of president shall 

serve on the OF board of directors until 

the presidency is filled permanently. 

The language in the proposed rule 

created some unintended ambiguity on 

this point, by stating that a person 

appointed to temporarily fill the duties 

of president may serve on the OF board 

of directors. The change will assure that 

a Bank has representation on the board 

as soon as the Bank’s board designates 

a temporary or interim president. 

Given that the proposed rule provided 

that from three to five Independent 

Directors would serve on the OF board 

of directors, commenters also requested 

that the final rule clarify how the final 

number of Independent Directors 

should be determined within the 

authorized range. They suggested that 

the OF board of directors be given 

authority to make this determination. 

FHFA agrees that some certainty on this 

point is needed, and has decided to 

change § 1273.7(a)(2) to specify that five 

Independent Directors shall serve on the 

OF board of directors. FHFA believes 

that five Independent Directors will 

better help assure a diversity of 

perspective and experience on the board 

and the Audit Committee and provide 

better representation with regard to the 

public interest than would having as 

few as three Independent Directors. 

FHFA also received a number of 

comments concerning the qualifications 

proposed in § 1273.7(a)(2) for 

Independent Directors. First, 

commenters felt that the criteria limiting 

an Independent Director’s financial 

interest in a Bank member or a 

consolidated obligation dealer or seller 

group should be eliminated because the 

requirement could prevent many 

qualified individuals serving as 

Independent Directors, especially given 

the large number of Bank members. 

Commenters also urged FHFA to adopt 

criteria closer to those used by the New 

York Stock Exchange to determine 

independence of board members, which 

would include a requirement that the 

board of directors affirmatively 

determine that the Independent Director 

had no material relationship with the 

Bank System. Commenters also 

indicated that the rule should make 

clear that only current officers, 

directors, or employees of a Bank or a 

Bank System member were prohibited 

from serving as Independent Directors 

and that this prohibition did not apply 

to former officers, directors, or 

employees. 

FHFA has considered these comments 

and has modified the qualifications for 

Independent Directors. Under the final 

rule, a director, to be considered 

independent, must not have any 

material relationship with a Bank or the 

OF (either directly or as the partner, 

shareholder, or officer of an 

organization with a material 

relationship) as determined under 

criteria set forth in a policy adopted by 

the OF board of directors. This policy 

should address when a financial interest 

in, or other relationship with, a Bank 

System member would constitute a 

material relationship with a Bank or the 

OF. This approach would give the board 

more flexibility to look at the nature of 

an individual’s financial interests in a 

member and determine whether the 


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interest would constitute a material 

relationship with a particular Bank that 

gives rise to a disqualifying conflict (or 

the appearance of such a conflict). The 

policy should also consider and address 

issues such as when a family member’s 

professional or financial interest may 

create a conflict that should disqualify 

an individual from serving as an 

Independent Director, or whether other 

direct or indirect relationships of an 

individual with the Bank System (which 

can include business or advisory 

relationships) should disqualify such 

individual from serving. FHFA expects 

that the OF board of directors will refer 

to rules of the New York Stock 

Exchange and similar organizations in 

developing the policy, but recognizes 

that the cooperative nature and other 

unique aspects of the Bank System may 

not allow such criteria to be adopted 

without appropriate modification. 

The final rule also sets forth 

minimum criteria that the 

‘‘independence’’ policy must meet. First, 

such policy must provide that an 

Independent Director may not be an 

officer, director or employee of any 

Bank, or member of a Bank. This 

requirement basically carries over 

previously proposed criteria. After 

considering the comments, FHFA also 

believes that recent employment or 

service as a director at a Bank or Bank 

member may also create at least an 

appearance that a director is not 

independent. Therefore, the OF board of 

directors’ policy must disqualify an 

individual who was an officer, director 

or employee of any Bank, or member of 

a Bank at any time in the past three 

years from serving as an Independent 

Director. The final rule also states that 

the policy must provide that a current 

officer or employee of the OF, or a 

person who was an officer or employee 

of the OF at any time during the past 

three years, cannot serve as an 

Independent Director. 

Second, the OF board policy must 

prohibit from serving as an Independent 

Director, a person who is affiliated with 

any consolidated obligations selling or 

dealer group under contract with the 

OF, or who has a financial interest in 

such group that exceeds the lesser of 

$250,000 or 0.01% of the group’s market 

capitalization. This final provision 

basically carries over the proposed 

financial interest limits for consolidated 

obligation seller or dealer groups. The 

final rule also adopts the proposed 

criteria as to when a financial interest in 

a holding company of a consolidated 

obligations seller or dealer group would 

disqualify a person from serving as an 

Independent Director. FHFA has further 

altered the final rule so that a person 

who has combined financial interests of 

more than $1,000,000 in more than one 

consolidated obligation seller or dealer 

groups under contract with the OF must 

also be disqualified by the OF board 

policy from serving as an Independent 

Director. FHFA continues to believe 

that, given the OF role in issuing COs, 

an Independent Director’s possessing 

such a financial interest in a 

consolidated obligation seller or dealer 

group or groups would create a conflict, 

or an appearance of conflict, that would 

prevent such a director from being 

considered independent, and is 

therefore adopting this provision as part 

of the final rule. 

As in the proposed rule, the final rule 

requires that Independent Directors be 

United States citizens and, as a group, 

have substantial experience in financial 

and accounting matters. With regard to 

this latter requirement, some 

commenters asked that FHFA verify that 

the reference to ‘‘as a group’’ meant that 

the requirement could be met when 

considering the collective expertise of 

the Independent Directors and did not 

have to be met by each Director. FHFA 

confirms that this was its intent. 

Commenters also requested 

confirmation that the experience can be 

derived from a variety of sources 

including past experience as an 

attorney, government official, or 

business executive that was involved in 

financial and accounting matters. Again, 

FHFA confirms that this was its intent 

as long as such involvement qualified as 

substantive experience and not merely 

tangential involvement in these areas. 

As proposed, § 1273.7(b) of the final 

rule provides that Independent 

Directors will serve for five-year terms 

which will be staggered so that no more 

than one Independent Director seat is 

scheduled for election in any one year. 

The final provision also provides, as in 

the proposed rule, that when an 

Independent Director seat becomes 

vacant prior to the end of a scheduled 

term, any individual will be elected (or 

appointed by FHFA) only for the 

remainder of the term associated with 

that seat. In response to comments, 

FHFA has clarified in the final rule that 

where a director is elected or appointed 

to fill an Independent Director seat that 

has become vacant before the end of the 

term, the partial term does not count for 

purposes of the prohibition on an 

Independent Director’s serving for more 

than two full terms. 

The final rule also continues to 

provide for FHFA to appoint the initial 

Independent Directors, the initial 

chairman of the reconstituted board 

from among the Independent Directors, 

and the initial vice chairman from 

among all directors, even though some 

commenters urged that these positions 

initially be filled through election by the 

board as a whole. FHFA believes that it 

has an important role to play in the 

initial selection of the board members to 

ensure that the overall goals of the rule 

are met, and thus has not altered the 

proposal on this point. 

To enable the current OF board of 

directors and the Banks to play an 

important role in nominating candidates 

for initial selection, however, FHFA has 

changed the process for nominating the 

initial slate of Independent Directors. 

Under § 1273.7(c)(2) of the final rule, 

the current OF board of directors, in 

consultation with the Banks, should 

nominate within 45 days of publication 

date of this final rule in the Federal 

Register a slate of at least five 

candidates for the Independent 

Directorships that FHFA can consider 

for appointment. This slate of 

candidates can include the private 

citizen member of the current OF board. 

This is a change from the proposed rule 

which provided that each Bank 

individually nominate one person and 

which did not give the current OF board 

a role in the nominating process. FHFA 

believes that the change will allow the 

current OF board and the Banks to 

propose a slate of candidates whose 

collective experience will be more 

appropriate and better suited to the 

duties of the board than if each Bank 

nominated a candidate individually. 

Overall, this should improve the 

chances that FHFA will find suitable 

candidates among the nominees. Under 

the final rule, FHFA will be able to 

appoint the Independent Directors from 

among the candidates nominated by the 

OF board, from among other persons 

identified by FHFA itself, or from some 

combination of these two groups. 

FHFA recognizes that at the time the 

current OF board will need to nominate 

a slate of candidates for consideration 

by FHFA as Independent Directors, the 

new board will not have had an 

opportunity to develop and approve the 

policy identifying additional criteria for 

‘‘independence’’ required by 

§ 1273.7(a)(2)(iii). Therefore, FHFA 

expects that the current board in 

choosing its slate of nominees for 

appointment as Independent Directors 

will assure that the candidates meet at 

least the minimum criteria for 

independence set forth in the final rule. 

In making its appointments, FHFA also 

will consider whether any relationships 

that a candidate may have with a Bank 

or the Bank System could, in its view, 

compromise the candidate’s ability to 

act independently and will make its 

decisions accordingly. 


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10See 12 CFR 1710.10. 

The final rule generally adopts the 

provisions dealing with election of 

independent directors as proposed. In 

this respect, the final rule requires the 

OF board to provide FHFA with 

relevant biographic and background 

information about an elected 

Independent Director at least 20 

business days before that Director 

assumes any duties. This requirement 

applies whether the person is newly 

elected or is being re-elected; for 

directors that are re-elected, FHFA 

would expect to receive relevant 

biographic and background information 

at least 20 business days before the new 

term begins. The final rule also retains 

FHFA’s right to object to a particular 

Independent Director and to appoint an 

Independent Director if FHFA believes 

in its judgment that the OF board failed 

to elect a qualified person. Some 

commenters objected to FHFA retaining 

the right of objection to, and 

appointment of, Independent Directors, 

but FHFA believes that this right of 

review is legitimate for the regulator and 

will help assure that the requirements 

and goals of this rule are met. In 

response to comments, the final rule 

does clarify, however, that FHFA will 

exercise its right to object to a particular 

Director prior to the time that the 

Independent Director is to assume his or 

her duties (or for a Director that has 

been re-elected, prior to when the new 

term is to begin). The rule also provides 

that in any notice of objection, FHFA 

will inform the OF board if FHFA will 

appoint someone to fill the seat in 

question or if the OF board should hold 

a new election to do so. 

In response to comments, the final 

rule modifies the proposed provisions 

subjecting the charters of any 

committees established by the board to 

FHFA’s review and approval, although 

the final rule continues to provide that 

the by-laws of the board of directors and 

the charter of the Audit Committee shall 

be subject to review and approval by 

FHFA. The final rule also no longer 

specifically reserves to FHFA the right 

to require the OF board of directors to 

withdraw or change the scope of any 

delegation made by it. These changes, 

however, do not alter or diminish 

FHFA’s general oversight, examination, 

or enforcement authority with regard to 

such actions by the OF board of 

directors. 

With regard to these proposed 

provisions, some commenters felt that it 

was inappropriate for FHFA to reserve 

to itself such direct involvement in the 

internal affairs of the OF board and that 

the provisions were contrary to the 

devolution of authority from the 

regulator to the Banks that began with 

the passage of the Gramm-Leach-Bliley 

Act of 1999. Commenters pointed out 

that this was especially true because, 

even without these provisions, all 

aspects of the OF’s activities would 

remain subject to FHFA’s general 

oversight and examination authority. 

Similar comments were made with 

regard to the proposed provision 

reserving to FHFA the right to require 

the OF board to withdraw or change the 

scope of any delegation made by it. 

FHFA believes that, in light of the 

changes to duties and responsibilities of 

the board of directors and the Audit 

Committee made by this regulation, 

FHFA has a legitimate need to review 

and approve the by-laws of the board of 

directors and the charter of the Audit 

Committee to assure that these 

documents are consistent with, and 

meet, the goals and requirements of this 

rulemaking. FHFA also believes that 

such review and approval is a proper 

exercise of its supervisory authority. 

Thus, the final rule continues to provide 

that the by-laws of the board of directors 

and the charter of the Audit Committee 

shall be subject to review and approval 

by FHFA. FHFA believes that that 

supervisory need is less prominent with 

respect to the charters of other 

committees and delegations made by the 

board, and therefore has deleted the 

requirement that those charters and 

delegations also be subject to FHFA 

review and approval. 

FHFA also adopted as final the 

proposed provision that provided that 

the OF shall pay reasonable 

compensation and expenses to the 

Independent Directors in accordance 

with the payment of compensation and 

expenses to Bank directors. Commenters 

urged FHFA to change this provision so 

that the OF board could compensate and 

pay expenses of Independent Directors 

as would be reasonable under the 

circumstances rather than limiting 

compensation and reimbursement by 

reference to provision applicable to 

Bank directors. In fact, the rule provides 

that OF director compensation must 

comply with the same standard as that 

of Bank directors—a standard of 

reasonableness—and not that OF 

director compensation be the same as 

that of Bank directors. 

In response to urging by commenters, 

FHFA changed in the final rule the 

provision dealing with indemnification 

so that the OF board can choose the 

body of law that would govern corporate 

governance practice and procedure, 

including indemnification, from among 

the law of the jurisdiction in which the 

OF is located, Delaware Corporation 

law, or the Revised Model Business 

Corporation Act. As commenters 

pointed out, this approach would be 

similar to rules previously adopted by 

OFHEO with regard to the Enterprises.10

The change will allow the OF board to 

have more specific guidance as to what 

legal standards should apply to their 

corporate governance and 

indemnification practices than did the 

proposed provision, which was silent 

on this point. The final rule requires the 

OF board to make this choice of law 

decision within 90 calendar days from 

the date of its initial organizational 

meeting required under § 1273.10. The 

final rule also makes clear that the OF 

shall indemnify its directors, officers 

(including the Chief Executive Officer), 

and employees under such terms and 

conditions as are determined by the 

board, and that the board may maintain 

insurance with respect to such persons. 

Section 1273.8—General Duties of the 

OF Doard of Directors 

Proposed § 1273.8 sets out the general 

duties of the OF board of directors. Most 

of the specific provisions in this section 

as proposed were carried over from 

existing Finance Board regulation 

§ 985.8. Nevertheless, FHFA received a 

number of comments on this section. 

First, commenters urged FHFA not to 

describe the OF board’s general duties 

by reference to the regulations in 12 

CFR part 917, as such references could 

create confusion. Commenters noted 

that the part 917 regulations address the 

duty of a Bank’s board of directors to a 

Bank’s members, and that the duties 

owed by the OF board of directors to the 

Banks and the Bank System may differ 

fundamentally from those owed by a 

Bank’s board to its member institutions. 

FHFA agrees, and has changed proposed 

§ 1273.8(a) accordingly. As adopted, 

§ 1273.8(a) now provides that an OF 

director should carry out his or her 

duties in good faith in a manner that the 

director believes to be in the best 

interests of the OF and the Bank System, 

with such care, including a duty of 

reasonable inquiry, as an ordinary 

prudent person in a like position would 

use under similar circumstances. It also 

provides that the OF directors should 

administer the affairs of the OF fairly 

and impartially without discrimination 

in favor of or against any Bank. It also 

requires directors to develop a 

familiarity with the basic business, 

finance, and accounting practices of the 

Banks, to be able to understand the 

Banks’ combined financial statements, 

and to make substantive inquiries of 

management and of the internal and 

external auditors with regard to the 

combined financial statements and the 


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11Thus, if all board seats were filled, a quorum 

would require the presence of at least nine board 

members, of whom at least three would have to be 

Independent Directors. 

12By contrast, the proposed rule also provided 

that the OF board of directors should assume such 

additional duties as might be assigned to it by 

FHFA. This provision was proposed and adopted as 

§ 1273.8(d)(6). 

OF’s individual financial statement. 

FHFA also removed other references to 

the part 917 regulations where it felt the 

reference could be confusing or 

inappropriate. 

Commenters also suggested that 

FHFA alter the proposed quorum 

requirements so that the requirement for 

a quorum could be set in the OF by-laws 

rather than in the rule, or that the 

quorum be set at a majority of sitting 

directors rather than ten directors as 

proposed. FHFA has considered these 

comments but believes that the quorum 

requirements should be set in the rule 

to assure that there is adequate 

representation of all parties, including 

Independent Directors, at each meeting. 

Thus, FHFA has adopted a final 

provision that states that a quorum 

requires at least a majority of sitting 

directors, which must include a 

majority of Independent Directors.11

The OF board may adopt in its by-laws 

more stringent quorum requirements 

than those adopted in the rule. 

Commenters argued that the 

requirement for at least six in-person 

board meetings per year should be 

dropped, and that the number of 

required meetings should instead be 

established in the by-laws. FHFA 

believes that, given the duties assigned 

to the OF board, a requirement of six inperson board meetings is reasonable and 

necessary to assure that those duties are 

carried out. Thus, it has not changed 

this requirement. 

FHFA also received comments asking 

that the proposal be changed to allow 

the OF board, rather than FHFA, to 

assign additional duties to the Chief 

Executive Officer of the OF. Proposed 

§ 1273.8(d)(4), however, already clearly 

provided that the OF board (and not 

FHFA) select, employ, determine the 

compensation for, and assign the duties 

and functions of the Chief Executive 

Officer, subject to certain minimum 

responsibilities.12 Thus, no change was 

made in the final rule in response to this 

comment. 

Section 1273.9—Audit Committee 

Proposed § 1273.9 set out the duties 

and function of the OF Audit 

Committee. Under the proposed rule, 

the Audit Committee would assume the 

OF board’s previous responsibility for 

overseeing the OF’s preparation of the 

combined financial reports, and duties 

related to overseeing the audit of these 

reports and of the OF itself. As part of 

these responsibilities, the proposed rule 

would have required the Audit 

Committee to ensure that the Banks 

adopt consistent accounting policies 

and procedures so that the combined 

financial reports continue to be accurate 

and meaningful. Where the Banks were 

unable to agree to such policies, the 

proposed rule would have authorized 

the Audit Committee, in consultation 

with FHFA, to prescribe them. 

A large number of the comments 

made on the proposed rule addressed 

§ 1273.9. In particular, commenters 

addressed the proposed provisions 

assigning to the Audit Committee the 

duty and authority to require the Banks 

to adopt consistent accounting policies 

and procedures so that information 

submitted by them may be combined to 

create accurate and meaningful 

combined financial reports. In general, 

commenters felt these provisions were 

inappropriate in that the power to adopt 

accounting policies and procedures 

should be vested in the board of 

directors or audit committees of the 

individual Banks. They also felt that the 

rule failed to recognize the role of the 

individual Banks in establishing their 

own accounting policies, and felt that 

consistency can only be achieved 

through cooperation, not by mandate of 

the OF’s Audit Committee. 

Alternatively, commenters suggested 

that the Audit Committee’s role be that 

of making recommendations to the full 

OF board of directors. One commenter 

suggested that the Audit Committee be 

required only to assure that Banks’ 

accounting policies and procedures be 

only ‘‘sufficiently’’ consistent to assure 

that information can be combined in an 

accurate and meaningful way. Some 

commenters also questioned whether 

the regulator-imposed limitation under 

the rule on a Bank’s right to make 

accounting policy choices otherwise 

acceptable under generally accepted 

accounting principles (GAAP) would 

itself be a violation of GAAP. Other 

commenters urged that the proposed 

rule be refined to reflect the appropriate 

discretion that is accorded to the Banks 

as independent entities to apply GAAP. 

Commenters also questioned the use 

of the phrase ‘‘accurate and meaningful’’ 

stating that it had no well-understood 

meaning in law. Commenters said the 

proposed provision also appeared to 

impose on the OF Audit Committee the 

duty to ensure accuracy of the 

underlying financial information 

submitted by the Banks, a task that they 

did not believe could be accomplished 

by the Audit Committee. They urged 

that the rule be recast to make clear that 

the OF Audit Committee was only 

responsible for the acts related to the 

combining of information and not for 

the accuracy of the information reported 

by the Banks. 

FHFA has carefully considered these 

comments. It continues to believe that 

the OF Audit Committee, made up of 

the Independent Directors, remains the 

appropriate body for overseeing the 

preparation of the combined financial 

reports, and it must have all appropriate 

authority needed to be successful in this 

task. As Independent Directors, 

members of the Audit Committee will 

have a lesser incentive and less of a 

vested interest than any Bank president 

to represent the view of any particular 

Bank or Banks, and will be in the best 

position to ensure that, given the 

information presented by the Banks, the 

combined financial reports presents an 

accurate and meaningful picture of the 

Bank System’s financial condition. 

FHFA agrees that as an initial matter, it 

is the duty of the Banks themselves to 

coordinate accounting policies and 

procedures to assure that information is 

presented in a uniform manner so that 

it can be combined in an accurate and 

meaningful fashion. FHFA also 

recognizes, however, that the Banks 

have not always been able to agree on 

such presentation and that it is 

appropriate to give the Audit Committee 

authority, in consultation with FHFA, to 

require consistent accounting policies 

and procedures where needed so that it 

can carry out its duties with regard to 

the preparation of the combined 

financial reports. FHFA does not believe 

that it is inconsistent with GAAP for the 

Audit Committee to require particular 

accounting principles to be used in 

submitting information for the 

combined reports from among the range 

of principles that may be available 

under GAAP; nor does FHFA believe 

that this is inconsistent with the 

independent identities and reporting 

responsibilities of the twelve Banks, 

given that they retain their authority to 

issue their own separate financial 

statements, which are not required to be 

consistent across all twelve Banks, in 

their SEC filings. 

FHFA also believes that its overall 

approach is consistent with its authority 

to supervise the safety and soundness of 

the Bank System. The goal of the rule 

is to improve the disclosure now 

provided by the combined financial 

reports. Combined financial reports are 

necessary and useful to the market 

because a Bank does not issue debt in 

its own name but as a Bank System. 

Thus, the need for the rule is driven by 

the unique funding mechanism of the 


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23160 Federal Register / Vol. 75, No. 84 / Monday, May 3, 2010 / Rules and Regulations 

13Section 10A(m)(2) of the 1934 Act states in 

relevant part that: 

The audit committee * * *, in its capacity as a 

committee of the board of directors, shall be 

directly responsible for the appointment, 

compensation and oversight of the work of any 

registered public accounting firm employed * * * 

(including resolution of disagreements between 

management and the auditor regarding financial 

reporting) for purposes of preparing or issuing an 

audit report or related work, and each registered 

public accounting firm shall report directly to the 

audit committee. 

15 U.S.C. 78j–1(m). 

Bank System, including the joint and 

several nature of Bank COs. 

Given the comments just discussed, 

FHFA also realizes that the wording of 

the proposed provisions may not have 

fully reflected its intent and thus has 

made some changes to the language of 

the final rule. First, it has changed the 

language in § 1273.9(b)(1) to state that 

the Audit Committee will be responsible 

for ‘‘overseeing the audit function of the 

OF and the preparation and the accurate 

and meaningful combination of the 

information submitted by the Banks in 

the Bank System’s combined financial 

reports.’’ FHFA believes that this 

wording more accurately reflects the 

Audit Committee’s oversight of the 

preparation of the combined financial 

reports especially, with regard to the 

basis and approach to combining 

information received from the Banks, 

but that the OF Audit Committee is not 

responsible for overseeing the reliability 

and integrity of the accounting policies 

and financial reporting and disclosure 

policies of the individual Banks, or the 

accuracy of the information that they 

submit. FHFA has also adopted new 

language in § 1273.9(b)(2) which now 

states that the ‘‘Audit Committee shall 

ensure that the Banks adopt consistent 

accounting policies and procedures to 

the extent necessary for information 

submitted by the Banks to the OF to be 

combined to create accurate and 

meaningful combined financial reports.’’ 

This change makes it clear that the 

Audit Committee’s authority to require 

consistent accounting policies and 

procedures is not meant to be unlimited 

in nature, but to assure it can fulfill its 

duties with regard to the combined 

financial reports. 

While FHFA has made some changes, 

it has kept the phrase ‘‘accurate and 

meaningful’’ even though some 

commenters felt it lacked precision and 

had no clear meaning under law. FHFA 

believes the words themselves have a 

well understood plain meaning and can 

be applied accordingly. In using the 

term ‘‘accurate’’, FHFA contemplates 

that the combination of the several 

Banks’ financial statements and 

quantitative disclosures is correctly 

presented, that the overall presentation 

complies with GAAP, relevant 

interpretative materials put forth by 

accounting and audit standard setters, 

and with this and other applicable 

regulations and guidance issued by 

FHFA. In using the term ‘‘meaningful’’, 

FHFA contemplates that the combined 

statements will present, in an 

understandable and transparent manner, 

robust disclosures and discussion that 

will enhance the readers’ understanding 

of the Banks’ combined financial 

conditions, changes in this financial 

condition, and the combined results of 

their operations. 

FHFA also notes that under this rule 

both as proposed and adopted, the 

Audit Committee is responsible for 

selecting the external auditor for the 

combined financial statements. 

Historically, the Banks have selected a 

common auditor for the individual Bank 

and combined financial statements 

audits. Engaging a common external 

auditor may promote more consistent 

accounting practices, would avoid 

subjecting the Banks and the OF to 

inter-firm disagreements on accounting 

matters, and has been found by the 

Banks to be more cost-effective than 

using multiple auditors. FHFA 

recognizes that as a practical matter the 

auditor for the combined financial 

reports is likely to be the same firm that 

audits the individual Banks. 

Based on comments, the final rule 

does not define the Audit Committee 

duties in § 1273.9(c) by reference to 

§ 917.7 of this title, which addresses the 

duties of a Bank’s audit committee. 

FHFA agrees that this reference is 

confusing given the differences between 

the Banks and the OF. Instead, FHFA 

added descriptions of relevant duties 

that should be carried out by the Audit 

Committee in the final rule as 

paragraphs (c)(7) through (c)(15) of 

§ 1273.9. This list of duties is based on 

those in § 917.7, although they have 

been modified to reflect differences 

between the Banks and the OF. The 

duties assigned to the Audit Committee 

under these provisions include 

overseeing the preparation and audit of 

the OF’s own financial statements and 

the OF’s internal controls. The Audit 

Committee is also responsible for 

providing an independent direct 

channel of communication between the 

OF board of directors and OF’s internal 

and external auditors. The Audit 

Committee also must periodically report 

findings to the full board and must keep 

written minutes of its meetings. The 

final rule also requires that the Audit 

Committee adopt and the full board 

approve, a written charter that specifies 

the scope of the Audit Committee’s 

powers and responsibilities, consistent 

with the duties and authority set forth 

in § 1273.9. The Audit Committee and 

the board also must review and assess 

the adequacy of the charter on an 

annual basis, and where appropriate 

make changes, and re-adopt and reapprove the charter not less often than 

every three years. The final rule makes 

clear that the charter of the Audit 

Committee is subject to review and 

approval by FHFA. 

Some commenters also requested that 

FHFA recast the duties of the Audit 

Committee based on language contained 

in the Securities Exchange Act of 1934 

(1934 Act).13 Along these lines 

commenters also asked that the rule 

should make clear that the Audit 

Committee is part of the board of 

directors as a whole and is not acting 

separate or apart from the board’s 

general oversight responsibility for the 

OF. FHFA has not made specific 

changes in response to these comments. 

FHFA believes that § 1273.9 as adopted 

is consistent with the audit committee 

provisions of the 1934 Act, although 

FHFA notes that, because the OF is not 

a reporting company or a company at 

all, those provisions do not apply to it. 

FHFA also received comments that 

the OF board of directors should be able 

to establish an Audit Committee made 

up of less than all of the Independent 

Directors. Commenters felt this would 

allow the board to find Independent 

Directors whose skills may not fit with 

those required for the Audit Committee 

but could provide important insights on 

other areas of interest. As already noted, 

FHFA believes that having five 

Independent Directors sit on the Audit 

Committee will better assure a diversity 

of perspective and experience than 

would a smaller number, and will 

thereby help the Committee better carry 

out its duties under this rule. FHFA also 

believes that the skill sets required of 

the Independent Directors under the 

rule are not narrowly tailored and that 

the board will be able to find 

Independent Directors with a wide 

range of knowledge and experience that 

will prove valuable to the board in 

carrying out its duties. FHFA therefore 

is not adopting this suggestion. 

Section 1273.9(a) of the final rule also 

now clarifies that the Audit Committee 

shall elect its chairperson from among 

its members. The provision makes clear 

that nothing prevents the Audit 

Committee from choosing the OF 

Chairperson also to serve as chair of the 

Audit Committee if the Committee so 

decides. This is not a requirement, 

however, and any Independent Director 


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may be elected chair of the Audit 

Committee. 

Section 1273.10—Transition 

Commenters suggested that the final 

rule should require that an 

organizational meeting of the new OF 

board of directors be held within a set 

time of the effective date of the rule and 

that the new OF board of directors be 

deemed to be reconstituted as of that 

date. FHFA agrees that it is important to 

set out in the rule more specific details 

of how the transition should occur 

between the current OF board of 

directors and the new board of directors 

required under this part 1273. As such, 

FHFA is adopting, as part of the final 

rule, § 1273.10, which lays out a 

transition provision. 

Under this section, the new OF board 

of directors will be required to hold an 

organizational meeting within 45 

calendar days of the date that FHFA first 

appoints an Independent Director under 

§ 1273.7(c). The board shall be deemed 

to be reconstituted as of the date of the 

organizational meeting. The rule 

provides that the person appointed 

chairman of the new board shall have 

authority to set the date of the 

organizational meeting. The transition 

provision also makes clear that until the 

date of the organizational meeting, the 

current OF board of directors and its 

audit committee shall continue to have 

power and authority to act in these 

capacities. 

The transition provision also provides 

that the audit committee as in existence 

immediately prior to the effective date 

of the rule may continue to have 

responsibility and oversight authority 

with regard to the preparation and 

publication of any combined financial 

report that covers a reporting period that 

ends prior to July 1, 2010. This 

provision will avoid requiring the 

members of the reconstituted Audit 

Committee to review and approve any 

combined financial statements for a 

period during which the new 

Committee was not in existence. The 

rule, however, would allow the new 

board of directors to determine that the 

new Audit Committee of Independent 

Directors may take over the 

responsibility for a combined financial 

report that covers a period prior to July 

1, 2010. This provision is meant to 

provide flexibility in when 

responsibility for the combined 

financial reports is handed over, given 

that it is difficult to predict the exact 

date of the organizational meeting and 

therefore hard to predict how much 

time a new Audit Committee would 

have before it had to take its first actions 

with respect to a combined financial 

report. Thus, if the board believes the 

Independent Directors have sufficient 

time to familiarize themselves with 

relevant issues prior to the completion 

of the preparation and publication of a 

combined financial report, it can allow 

the new Audit Committee to take over 

this duty with respect to a report that 

covers a period prior to the third quarter 

of 2010. 

Appendix A to Part 1273 and Part 1274 

FHFA did not receive any specific 

comments on the proposed Appendix A 

to Part 1273 or to the proposed Part 

1274 rules. FHFA is adopting these 

provisions substantively as proposed. 

FHFA notes that as adopted, Appendix 

A to Part 1273 would require 

biographical information about the Bank 

presidents to appear only once in the 

combined financial report and not 

twice, even though the Bank presidents 

also serve as OF board members. The 

combined report should make clear that 

the Bank presidents serve as OF board 

members and provide an appropriate 

cross reference to where the 

biographical information appears. 

III. Paperwork Reduction Act 

The final rule does not contain any 

collections of information pursuant to 

the Paperwork Reduction Act of 1995 

(44 U.S.C. 3501 et seq.). Therefore, 

FHFA has not submitted any 

information to the Office of 

Management and Budget for review. 

IV. Regulatory Flexibility Act 

The final rule applies only to the 

Banks and the OF (which is a joint 

office of the Banks), which do not come 

within the meaning of small entities as 

defined in the Regulatory Flexibility Act 

(RFA). See 5 U.S.C. 601(6). Therefore, in 

accordance with section 605(b) of the 

RFA, 5 U.S.C. 605(b), FHFA certifies 

that this final rule will not have 

significant economic impact on a 

substantial number of small entities. 

List of Subjects 

12 CFR Part 985 

Federal home loan bank, Securities. 

12 CFR Part 989 

Accounting, Federal home loan banks, 

Financial disclosure. 

12 CFR Part 1273 

Federal home loan banks, Securities. 

12 CFR Part 1274 

Accounting, Federal home loan banks, 

Financial disclosure. 

■ Accordingly, for reasons stated in the 

preamble, under the authority of 12 

U.S.C. 4526(a), FHFA amends chapters 

IX and XII of title 12 of the Code of 

Federal Regulations as follows: 

CHAPTER IX—FEDERAL HOUSING 

FINANCE BOARD 

Subchapter K—Office of Finance 

PART 985—[REMOVED] 

■ 1. Remove 12 CFR part 985. 

PART 989—[REMOVED] 

■ 2. Remove 12 CFR part 989. 

CHAPTER XII—FEDERAL HOUSING 

FINANCE AGENCY 

Subchapter D—Federal Home Loan Banks 

■ 3. Add part 1273 to subchapter D to 

read as follows: 

PART 1273—OFFICE OF FINANCE 

Sec. 

1273.1 Definitions. 

1273.2 Authority of the OF. 

1273.3 Functions of the OF. 

1273.4 FHFA oversight. 

1273.5 Funding of the OF. 

1273.6 Debt management duties of the OF. 

1273.7 Structure of the OF board of 

directors. 

1273.8 General duties of the OF board of 

directors. 

1273.9 Audit Committee. 

1273.10 Transition. 

Appendix A to Part 1273—Exceptions to the 

General Disclosure Standards 

Authority: 12 U.S.C. 1431, 1440, 4511(b), 

4513, 4514(a), 4526(a). 

§ 1273.1 Definitions. 

For purposes of this part: 

Audit Committee means the OF 

Independent Directors acting as the 

committee established in accordance 

with § 1273.9 of this part. 

Bank written in title case, means a 

Federal Home Loan Bank established 

under section 12 of the Bank Act (12 

U.S.C. 1432). 

Bank Act means the Federal Home 

Loan Bank Act, as amended (12 U.S.C. 

1421 through 1449). 

Bank System means the Federal Home 

Loan Bank System, consisting of the 

twelve Banks and the Office of Finance. 

Chair means the chairperson of the 

board of directors of the Office of 

Finance. 

Chief Executive Officer or CEO means 

the chief executive officer of the Office 

of Finance. 

Consolidated obligations means any 

bond, debenture or note on which the 

Banks are jointly and severally liable 

and which was issued under section 11 

of the Bank Act (12 U.S.C. 1431) and 

any implementing regulations, whether 

or not such instrument was originally 

issued jointly by the Banks or by the 

Federal Housing Finance Board on 

behalf of the Banks. 


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FHFA means the Federal Housing 

Finance Agency. 

Financing Corporation or FICO means 

the Financing Corporation established 

and supervised by FHFA under section 

21 of the Bank Act (12 U.S.C. 1441). 

Generally accepted accounting 

principles or GAAP means accounting 

principles generally accepted in the 

United States. 

Independent Director means a 

member of the OF board of directors 

who meets the qualifications set forth in 

§ 1273.7(a)(2) of this part. 

NRSRO means a credit rating 

organization registered as a Nationally 

Recognized Statistical Rating 

Organization with the Securities and 

Exchange Commission. 

Office of Finance or OF means the 

Office of Finance, a joint office of the 

Banks established under this part 1273 

and referenced in the Bank Act and the 

Safety and Soundness Act. 

Resolution Funding Corporation or 

REFCORP means the Resolution 

Funding Corporation established by 

section 21B of the Bank Act (12 U.S.C. 

1441b). 

Safety and Soundness Act means the 

Federal Housing Enterprises Financial 

Safety and Soundness Act of 1992 (12 

U.S.C. 4501 et seq.), as amended. 

§ 1273.2 Authority of the OF. 

(a) General. The OF shall enjoy such 

incidental powers under section 12(a) of 

the Bank Act (12 U.S.C. 1432(a)), as are 

necessary, convenient and proper to 

accomplish the efficient execution of its 

duties and functions pursuant to this 

part, including the authority to contract 

with a Bank or Banks for the use of Bank 

facilities or personnel in order to 

perform its functions or duties. 

(b) Agent. The OF, in the performance 

of its duties, shall have the power to act 

on behalf of the Banks in issuing 

consolidated obligations and in paying 

principal and interest due on the 

consolidated obligations, or other 

obligations of the Banks. 

(c) Assessments. The OF shall have 

authority to assess the Banks for the 

funding of its operations in accordance 

with § 1273.5 of this part. 

§ 1273.3 Functions of the OF. 

(a) Joint debt issuance. Subject to 

parts 965 and 966 of this title, and this 

part, the OF, as agent for the Banks, 

shall offer, issue, and service (including 

making timely payments on principal 

and interest due) consolidated 

obligations. 

(b) Preparation of combined financial 

reports. The OF shall prepare and issue 

the combined annual and quarterly 

financial reports for the Bank System in 

accordance with the requirements of 

§ 1273.6(b) and Appendix A of this part, 

using consistent accounting policies and 

procedures as provided in § 1273.9(b) of 

this part. 

(c) Fiscal agent. The OF shall function 

as the fiscal agent of the Banks. 

(d) Financing Corporation and 

Resolution Funding Corporation. The 

OF shall perform such duties and 

responsibilities for FICO as may be 

required under part 995 of this title, or 

for REFCORP as may be required under 

part 996 of this title or authorized by 

FHFA pursuant to section 21B(c)(6)(B) 

of the Bank Act (12 U.S.C. 

1441b(c)(6)(B)). 

§ 1273.4 FHFA oversight. 

(a) Oversight and enforcement 

actions. FHFA shall have such oversight 

authority over the OF, the OF board of 

directors, the officers, employees, 

agents, attorneys, accountants, or other 

OF staff as set forth in the Bank Act, the 

Safety and Soundness Act, and FHFA 

regulations issued thereunder. 

(b) Examinations. Pursuant to section 

20 of the Bank Act (12 U.S.C. 1440), 

FHFA shall examine the OF, all funds 

and accounts that may be established 

pursuant to this part 1273, and the 

operations and activities of the OF, as 

provided for in the Bank Act, the Safety 

and Soundness Act, or any regulations 

promulgated pursuant thereto. 

(c) Combined financial reports. FHFA 

shall determine whether a combined 

Bank System annual or quarterly 

financial report complies with the 

standards of this part. 

§ 1273.5 Funding of the OF. 

(a) Generally. The Banks are 

responsible for jointly funding all the 

expenses of the OF, including the costs 

of indemnifying the members of the OF 

board of directors, the Chief Executive 

Officer, and other officers and 

employees of the OF, as provided for in 

this part. 

(b) Funding policies.—(1) At the 

direction of and pursuant to policies 

and procedures adopted by the OF 

board of directors, the Banks shall 

periodically reimburse the OF in order 

to maintain sufficient operating funds 

under the budget approved by the OF 

board of directors. The OF operating 

funds shall be: 

(i) Available for expenses of the OF 

and the OF board of directors, according 

to their approved budgets; and 

(ii) Subject to withdrawal by check, 

wire transfer or draft signed by the Chief 

Executive Officer or other persons 

designated by the OF board of directors. 

(2) Each Bank’s respective pro rata 

share of the reimbursement described in 

paragraph (b)(1) of this section shall be 

based on a reasonable formula approved 

by the OF board of directors. Such 

formula shall be subject to the review of 

FHFA, and the OF board of directors 

shall make any changes to the formula 

as may be ordered by FHFA from time 

to time. 

(c) Alternative funding method. With 

the prior approval of FHFA, the OF 

board of directors may, by contract with 

a Bank or Banks, choose to be 

reimbursed through a fee structure, in 

lieu of or in addition to assessment, for 

services provided to the Bank or Banks. 

(d) Prompt reimbursement. Each Bank 

from time to time shall promptly 

forward funds to the OF in an amount 

representing its share of the 

reimbursement described in paragraph 

(b) of this section when directed to do 

so by the Chief Executive Officer 

pursuant to the procedures of the OF 

board of directors. 

(e) Indemnification expenses. All 

expenses incident to indemnification of 

the members of the OF board of 

directors, the Chief Executive Officer, 

and other officers and employees of the 

OF shall be treated as an expense of the 

OF to be reimbursed by the Banks under 

the provisions of this part. 

(f) Operating funds segregated. Any 

funds received by the OF from the 

Banks pursuant to this section for OF 

operating expenses promptly shall be 

deposited into one or more accounts 

and shall not be commingled with any 

proceeds from the sale of consolidated 

obligations in any manner. 

§ 1273.6 Debt management duties of the 

OF. 

(a) Issuing and servicing of 

consolidated obligations. The OF, as 

agent for the Banks, shall issue and 

service (including making timely 

payments on principal and interest due, 

subject to §§ 966.8 and 966.9 of this 

title) consolidated obligations pursuant 

to and in accordance with the policies 

and procedures established by the OF 

board of directors under this part. 

(b) Combined financial reports 

requirements. The OF, under the 

oversight of the Audit Committee, shall 

prepare and distribute the combined 

annual and quarterly financial reports 

for the Bank System in accordance with 

the following requirements: 

(1) The scope, form, and content of 

the disclosure generally shall be 

consistent with the requirements of the 

Securities and Exchange Commission 

Regulations S–K and S–X (17 CFR parts 

229 and 210). 

(2) Information about each Bank shall 

be presented as a segment of the Bank 

System as if generally accepted 


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accounting principles regarding 

business segment disclosure applied to 

the combined annual and quarterly 

financial reports of the Bank System, 

and shall be presented using consistent 

accounting policies and procedures as 

provided in § 1273.9(b) of this part. 

(3) The standards set forth in 

paragraphs (b)(1) and (b)(2) of this 

section are subject to the exceptions set 

forth in Appendix A to this part. 

(4) The combined Bank System 

annual financial reports shall be filed 

with FHFA and distributed to each Bank 

and Bank member within 90 days after 

the end of the fiscal year. The combined 

Bank System quarterly financial reports 

shall be filed with FHFA and 

distributed to each Bank and Bank 

member within 45 days after the end of 

the of the first three fiscal quarters of 

each year. 

(5) The Audit Committee shall ensure 

that the combined Bank System annual 

or quarterly financial reports comply 

with the standards of this part. 

(6) The OF and the OF board of 

directors, including the Audit 

Committee, shall comply promptly with 

any directive of FHFA regarding the 

preparation, filing, amendment, or 

distribution of the combined Bank 

System annual or quarterly financial 

reports. 

(7) Nothing in this section shall create 

or be deemed to create any rights in any 

third party. 

(c) Capital markets data. The OF shall 

provide capital markets information 

concerning debt to the Banks. 

(d) NRSROs. The OF shall manage the 

relationships with NRSROs in 

connection with their rating of 

consolidated obligations. 

(e) Research. The OF shall conduct 

research reasonably related to the 

issuance or servicing of consolidated 

obligations. 

(f) Monitor Banks’ credit exposure. 

The OF shall timely monitor, and 

compile relevant data on, each Bank’s 

and the Bank System’s unsecured credit 

exposure to individual counterparties. 

§ 1273.7 Structure of the OF board of 

directors. 

(a) Membership. The OF board of 

directors shall consist of seventeen parttime members as follows: 

(1) The twelve Bank presidents, ex 

officio, provided that if the presidency 

of any Bank becomes vacant, the person 

designated by the Bank’s board of 

directors to temporarily fulfill the duties 

of president of that Bank shall serve on 

the OF board of directors until the 

presidency is filled permanently; and 

(2) Five Independent Directors who— 

(i) Each shall be a citizen of the 

United States; 

(ii) As a group, shall have substantial 

experience in financial and accounting 

matters; and 

(iii) Shall not have any material 

relationship with a Bank, or the OF 

(directly or as a partner, shareholder or 

officer of an organization), as 

determined under criteria set forth in a 

policy adopted by the OF board of 

directors. At a minimum, such policy 

shall provide that an Independent 

Director may not: 

(A) Be an officer, director, or 

employee of any Bank or member of a 

Bank, or have been an officer director or 

employee of a Bank or member of a 

Bank during the previous three years; 

(B) Be an officer or employee of the 

OF, or have been an officer or employee 

of the OF during the previous three 

years; or 

(C) Be affiliated with any consolidated 

obligations selling or dealer group under 

contract with OF, or hold shares or any 

other financial interest in any entity that 

is part of a consolidated obligations 

seller or dealer group in an amount 

greater than the lesser of $250,000 or 

0.01% of the market capitalization of 

the seller or dealer group; or in an 

amount that exceeds $1,000,000 for all 

entities that are part of any consolidated 

obligations seller dealer group, 

combined. For purposes of this 

paragraph (a)(2)(iii)(C), a holding 

company of an entity that is part of a 

consolidated obligations seller or dealer 

group shall be deemed to be part of the 

consolidated obligations selling or 

dealer group if the assets of the holding 

company’s subsidiaries that are part of 

a consolidated obligation seller or dealer 

group constitute 35% or more of the 

consolidated assets of the holding 

company. 

(b) Terms.—(1) Except as provided in 

paragraphs (b)(2) and (c)(1) of this 

section, each Independent Director shall 

serve for five-year terms (which shall be 

staggered so that no more than one 

Independent Director seat would be 

scheduled to become vacant in any one 

year), and shall be subject to removal or 

suspension in accordance with 

§ 1273.4(a) of this part. An Independent 

Director may not serve more than two 

full, consecutive terms, provided that 

any partial term served by an 

Independent Director pursuant to 

paragraph (b)(2) of this section, or time 

served by a private citizen member of 

the OF Board pursuant to an 

appointment made prior to the effective 

date of this part, shall not count as a 

term for purposes of this restriction. 

(2) The OF board of directors shall fill 

any vacancy among the Independent 

Directors occurring prior to the 

scheduled end of a term by majority 

vote, subject to FHFA’s review of, and 

non-objection to, the new Independent 

Director. The OF board of directors shall 

provide FHFA with the same biographic 

and background information about the 

new Independent Director required 

under paragraph (d) of this section, and 

FHFA shall have the same rights of nonobjection to the Independent Director 

(and to appoint a different Independent 

Director) as set forth in paragraph (d) of 

this section. A person shall be elected 

(or otherwise appointed by FHFA) 

under this paragraph to serve only for 

the remainder of the term associated 

with the vacant directorship. 

(c) Initial selection of Independent 

Directors.—(1) As soon as practicable 

after the effective date of this regulation, 

FHFA shall fill the initial Independent 

Director positions by appointment. The 

Independent Directors shall be 

appointed for such periods of time, not 

to exceed five years, to assure the terms 

are staggered in accordance with 

paragraph (b)(1) of this section. 

(2) The two Bank presidents and the 

private citizen member who constituted 

the OF board of directors immediately 

prior to the effective date of this rule 

shall, in consultation with the Banks, 

agree on a slate of at least five persons 

and nominate such persons for 

consideration for appointment as 

Independent Directors by FHFA under 

this paragraph (c). The nominations 

shall be submitted to FHFA on or before 

June 17, 2010. FHFA may appoint 

persons nominated under this paragraph 

or other persons identified by it and 

meeting the requirements of paragraph 

(a)(2) of this section, or some 

combination. 

(d) Election of Independent Directors 

after the initial terms. Once the terms of 

the Independent Directors initially 

appointed by FHFA expire or the 

positions otherwise become vacant, the 

Independent Directors subsequently 

shall be elected by majority vote of the 

OF board of directors, subject to FHFA’s 

review of, and non-objection to, each 

Independent Director. The OF board of 

directors shall provide FHFA with 

relevant biographic and background 

information, including information 

demonstrating that the new 

Independent Director meets the 

requirements of paragraph (a)(2) of this 

section, at least 20 business days before 

the person assumes any duties as a 

member of the OF board of directors. If 

the OF board of directors, in FHFA’s 

judgment, fails to elect a suitably 

qualified person, FHFA may appoint 

some other person who meets the 

requirements of paragraph (a)(2) of this 

section. FHFA will provide notice of its 

objection to a particular Independent 


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Director prior to the date that such 

Director is to assume duties as a 

member of the OF board of directors. 

Such notice shall indicate whether, 

given FHFA’s objection, FHFA intends 

to fill the seat through appointment or 

a new election should be held by the OF 

board of directors. 

(e) Initial Selection of Chair and ViceChair. The first Chair and Vice-Chair of 

the OF board of directors after the 

effective date of this regulation shall be 

appointed by FHFA. The Chair shall be 

selected from among the Independent 

Directors appointed under paragraph 

(c)(1) of this section. The Vice-Chair 

shall be selected from among all OF 

board directors. 

(f) Subsequent Election of Chair and 

Vice-Chair. After the terms of the 

persons selected under paragraph (e) of 

this section expire or the positions 

otherwise become vacant: 

(1) Subsequent Chairs shall be elected 

by majority vote of the OF board of 

directors from among the Independent 

Directors then serving on the OF board 

of directors; and 

(2) Subsequent Vice-Chairs shall be 

elected by majority vote of the OF board 

of directors from among all directors. 

(3) The OF board of directors shall 

promptly inform FHFA of the election 

of a Chair or Vice-Chair. If FHFA objects 

to any Chair or Vice-Chair elected by the 

OF board of directors, FHFA shall 

provide written notice of its objection 

within 20 business days of the date that 

FHFA first receives the notice of the 

election of the Chair and or Vice-Chair, 

and the OF board of directors must then 

promptly elect a new Chair or ViceChair, as appropriate. 

(g) By-laws and Committees.—(1) The 

OF board of directors shall adopt bylaws governing the manner in which the 

board conducts its affairs, which shall 

be consistent with the requirements of 

this part and other applicable laws and 

regulations as administered by FHFA. 

The by-laws of the board of directors 

shall be subject to review and approval 

by FHFA. 

(2) In addition to the Audit 

Committee required under § 1273.9 of 

this part, the OF board of directors may 

establish other committees, including an 

Executive Committee. The duties and 

powers of such committee, including 

any powers delegated by the OF board 

of directors, shall be specified in the bylaws of the board of directors or the 

charter of the committee. 

(h) Compensation.—(1) The Bank 

presidents shall not receive any 

additional compensation or 

reimbursement as a result of their 

service as a director of the OF board. 

(2) The OF shall pay reasonable 

compensation and expenses to the 

Independent Directors in accordance 

with the requirements for payment of 

compensation and expenses to Bank 

directors as set forth in part 1261 of this 

title. 

(i) Corporate Governance and 

Indemnification.—(1) General. The 

corporate governance practices and 

procedures of the OF, and practices and 

procedures related to indemnification 

(including advancement of expenses) 

shall comply with applicable Federal 

law rules and regulations. 

(2) Election and designation of body 

of law. To the extent not inconsistent 

with paragraph (i)(1) of this section, the 

OF shall elect to follow the corporate 

governance and indemnification 

practices and procedures set forth in 

one of the following: (i) The law of the 

jurisdiction in which the principal 

office of the OF is located, as amended; 

(ii) the Delaware General Corporation 

Law (Del. Code Ann. Title 8, as 

amended); or (iii) the Revised Model 

Business Corporation Act, as amended. 

The OF board of directors, as 

constituted under this part, shall 

designate in its by-laws the body of law 

elected pursuant to this paragraph (i)(2) 

within 90 calendar days from the date 

that it holds the organizational meeting 

required under § 1273.10(a) of this part. 

(3) Indemnification. Subject to 

paragraphs (i)(1) and (i)(2) of this 

section, to the extent applicable, the OF 

shall indemnify (and advance the 

expenses of) its directors, officers and 

employees under such terms and 

conditions as are determined by the OF 

board of directors. The OF shall be 

authorized to maintain insurance for its 

directors, the CEO, and any other officer 

or employee of the OF. Nothing in this 

paragraph shall affect any rights to 

indemnification (including the 

advancement of expenses) that a 

director, the CEO, or any other officer or 

employee of the OF had with respect to 

any actions, omissions, transactions, or 

facts occurring prior to the effective date 

of this paragraph (i). 

(j) Delegation. In addition to any 

delegation to a committee allowed 

under paragraph (g) of this section, the 

OF board of directors may delegate any 

of its authority or duties to any 

employee of the OF in order to enable 

OF to carry out its functions. 

(k) Outside staff and consultants. In 

carrying out its duties and 

responsibilities, the OF board of 

directors, or any committee thereof, 

shall have authority to retain staff and 

outside counsel, independent 

accountants, or other outside 

consultants at the expense of the OF. 

§ 1273.8 General duties of the OF board of 

directors. 

(a) General. Each director shall have 

the duty to: 

(1) Carry out his or her duties as 

director in good faith, in a manner such 

director believes to be in the best 

interests of the OF and the Bank System, 

and with such care, including 

reasonable inquiry, as an ordinarily 

prudent person in a like position would 

use under similar circumstances; 

(2) Administer the affairs of the OF 

fairly and impartially and without 

discrimination in favor of or against any 

Bank; 

(3) At the time of appointment or 

election, or within a reasonable time 

thereafter, have a working familiarity 

with basic finance and accounting 

practices, including the ability to read 

and understand the Banks’ combined 

balance sheets and income statements 

and the relevant financial statements of 

the OF and to ask substantive questions 

of management and the internal and 

external auditors with regard to both the 

combined financial statements of the 

Bank System and the operations and 

financial statements of the OF, as 

appropriate; and 

(4) Direct the operations of the OF in 

conformity with the requirements set 

forth in the Bank Act, Safety and 

Soundness Act, and this chapter. 

(b) Meetings and quorum. The OF 

board of directors shall conduct its 

business by majority vote of its members 

at meetings convened in accordance 

with its by-laws, and shall hold no 

fewer than six in-person meetings 

annually. Due notice shall be given to 

FHFA by the Chair prior to each 

meeting. A quorum, for purposes of 

meetings of the OF board of directors, 

shall require a majority of sitting board 

members, which must include a 

majority of sitting Independent 

Directors. 

(c) Duties regarding COs. The OF 

board of directors shall oversee the 

establishment of policies regarding COs 

that shall: 

(1) Govern the frequency and timing 

of issuance, issue size, minimum 

denomination, CO concessions, 

underwriter qualifications, currency of 

issuance, interest-rate change or 

conversion features, call features, 

principal indexing features, selection 

and retention of outside counsel, 

selection of clearing organizations, and 

the selection and compensation of 

underwriters for consolidated 

obligations, which shall be in 

accordance with the requirements and 

limitations set forth in paragraph (c)(4) 

of this section; 


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(2) Prohibit the issuance of COs 

intended to be privately placed with or 

sold without the participation of an 

underwriter to retail investors, or issued 

with a concession structure designed to 

facilitate the placement of the COs in 

retail accounts, unless the OF has given 

notice to the board of directors of each 

Bank describing a policy permitting 

such issuances, soliciting comments 

from each Bank’s board of directors, and 

considering the comments received 

before adopting a policy permitting such 

issuance activities; 

(3) Require all broker-dealers or 

underwriters under contract to the OF to 

have and maintain adequate suitability 

sales practices and policies, which shall 

be acceptable to, and subject to review 

by, the OF; 

(4) Require that COs shall be issued 

efficiently and at the lowest all-in 

funding costs over time, consistent 

with— 

(i) Prudent risk-management 

practices, prudential debt parameters, 

short and long-term market conditions, 

and the Banks’ role as GSEs; 

(ii) Maintaining reliable access to the 

short-term and long-term capital 

markets; and 

(iii) Positioning the issuance of debt 

to take advantage of current and future 

capital market opportunities. 

(d) Other duties. The OF board of 

directors shall: 

(1) Set policies for management and 

operation of the OF; 

(2) Approve a strategic business plan 

for the OF in accordance with the 

provisions of § 917.5 of this title, as 

appropriate; 

(3) Review, adopt and monitor annual 

operating and capital budgets of the OF 

in accordance with the provisions of 

§ 917.8 of this title, as appropriate; 

(4) Select, employ, determine the 

compensation for, and assign the duties 

and functions of a Chief Executive 

Officer of the OF who shall— 

(i) Be head of the OF and direct the 

implementation of the OF board of 

directors’ policies; 

(ii) Serve as a member of the 

Directorate of the FICO, pursuant to 

section 21(b)(1)(A) of the Bank Act (12 

U.S.C. 1441(b)(1)(A)); and 

(iii) Serve as a member of the 

Directorate of the REFCORP, pursuant to 

section 21B(c)(1)(A) of the Bank Act (12 

U.S.C. 1441b(c)(1)(A)). 

(5) Review and approve all contracts 

of the OF, except for contracts for which 

exclusive authority is provided to the 

Audit Committee by paragraphs (b)(5) 

and (b)(6) of § 1273.9; and 

(6) Assume any other responsibilities 

that may from time to time be assigned 

to it by FHFA. 

(e) No rights created. Nothing in this 

part shall create or be deemed to create 

any rights in any third party. 

§ 1273.9 Audit Committee. 

(a) Composition. The Independent 

Directors shall serve as the Audit 

Committee. The Audit Committee shall 

elect its chairperson from among its 

members. The Chairperson of the OF 

may also serve as chairperson of the 

Audit Committee, if the Audit 

Committee members so decide. 

(b) Responsibilities.—(1) The Audit 

Committee shall be responsible for 

overseeing the audit function of the OF 

and the preparation and the accurate 

and meaningful combination of 

information submitted by the Banks in 

the Bank System’s combined financial 

reports. 

(2) For purposes of the combined 

financial reports, the Audit Committee 

shall ensure that the Banks adopt 

consistent accounting policies and 

procedures to the extent necessary for 

information submitted by the Banks to 

the OF to be combined to create 

accurate and meaningful combined 

financial reports. 

(3) The Audit Committee, in 

consultation with FHFA, may establish 

common accounting policies and 

procedures for the information 

submitted by the Banks to the OF for the 

combined financial reports where the 

Committee determines such information 

provided by the several Banks is 

inconsistent and that consistent policies 

and procedures regarding that 

information are necessary to create 

accurate and meaningful combined 

financial reports. 

(4) To the extent possible the Audit 

Committee shall operate consistent with 

the requirements pertaining to audit 

committee reports set forth in Item 

407(d)(3) of Regulation S–K 

promulgated by the Securities and 

Exchange Commission. 

(5) The Audit Committee shall 

oversee internal audit activities, 

including the selection, evaluation, 

compensation and, where appropriate, 

replacement of the internal auditor. The 

internal auditor shall report directly to 

the Audit Committee and 

administratively to executive 

management. 

(6) The Audit Committee shall have 

the exclusive authority to employ and 

contract for the services of an 

independent, external auditor for the 

Banks’ annual and quarterly combined 

financial statements and of an 

independent, external auditor for OF. 

(7) The Audit Committee shall direct 

senior management to maintain the 

reliability and integrity of the 

accounting policies and financial 

reporting of the OF. 

(8) The Audit Committee shall review 

the basis for the OF’s financial 

statements and the external auditor’s 

opinion rendered with respect to such 

financial statements. 

(9) The Audit Committee shall ensure 

that senior management has established 

and is maintaining an adequate internal 

control system within the OF by: 

(i) Reviewing the OF’s internal control 

system and the resolution of identified 

material weaknesses and reportable 

conditions in the internal control 

system, including the prevention or 

detection of management override or 

compromise of the internal control 

system; and 

(ii) Reviewing the programs and 

policies of the OF designed to ensure 

compliance with applicable laws, 

regulations, and policies and monitoring 

the results of these compliance efforts. 

(10) The Audit Committee shall 

review the policies and procedures 

established by senior management to 

assess and monitor implementation of 

the OF strategic business plan and the 

operating goals and objectives contained 

therein. 

(11) The Audit Committee shall 

provide an independent, direct channel 

of communication between the OF’s 

board of directors and the internal and 

external auditors. 

(12) The Audit Committee shall 

conduct or authorize investigations into 

any matters within the Audit 

Committee’s scope of responsibilities. 

(13) The Audit Committee shall report 

periodically its findings to the OF’s 

board of directors. 

(14) The Audit Committee shall 

prepare written minutes of each Audit 

Committee meeting. 

(c) Charter.—(1) The Audit Committee 

shall adopt, and the OF board of 

directors shall approve, a formal written 

charter, consistent with the duties and 

authority set forth in this section, that 

specifies the scope of the Audit 

Committee’s powers and 

responsibilities. The Audit Committee 

and the OF board of directors shall: 

(i) Review, and assess the adequacy of 

and, where appropriate, amend the 

Audit Committee charter on an annual 

basis; and 

(ii) Re-adopt and re-approve, 

respectively, the Audit Committee 

charter not less often than every three 

years. 

(2) The charter of the Audit 

Committee shall be subject to review 

and approval by FHFA. 

(d) No delegation. The Audit 

Committee may not delegate the 

responsibilities assigned to it under this 


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23166 Federal Register / Vol. 75, No. 84 / Monday, May 3, 2010 / Rules and Regulations 

section to any person, or to any other 

committee or sub-committee of the OF 

board of directors. 

§ 1273.10 Transition. 

(a) Within 45 calendar days of the 

date on which FHFA first appoints an 

Independent Director pursuant to 

§ 1273.7(c) of this part, the OF board of 

directors as structured under this part 

shall hold an organizational meeting. At 

the time of such meeting, the OF board 

of directors and its Audit Committee 

shall be deemed to be reconstituted in 

accordance with this part, and, except 

as set forth in paragraph (c) of this 

section, shall thereafter operate in 

accordance with this part. The date of 

this organizational meeting shall be set 

by the Independent Director that has 

been appointed as Chairman of the OF 

board of directors by FHFA pursuant to 

§ 1273.7(e) of this part. 

(b) Until the date of the organizational 

meeting required by paragraph (a) of 

this section, the board of directors of 

OF, and audit committee thereof, as in 

existence immediately prior to the 

effective date of this rule, shall continue 

to have power and authority to act as 

the OF board of directors or audit 

committee thereof, as applicable. 

Further, the board members who served 

as Chair and Vice-Chair of the OF board 

immediately prior to the effective date 

of this rule shall continue also to serve 

in these capacities until the date of the 

organizational meeting required under 

paragraph (a). 

(c) Further, the audit committee as in 

existence immediately prior to the 

effective date of this rule shall continue 

to have responsibility and oversight 

authority with regard to the preparation 

and publication of the combined 

financial report for any reporting period 

that ends prior to July 1, 2010, unless 

the board of directors established under 

this part determines that the Audit 

Committee as established under this 

part should be given such 

responsibility. 

Appendix A to Part 1273—Exceptions 

to the General Disclosure Standards 

A. Related-party transactions. Item 404 of 

Regulation S–K, 17 CFR 229.404, requires the 

disclosure of certain relationships and 

related party transactions. In light of the 

cooperative nature of the Bank System, 

related-party transactions are to be expected, 

and a disclosure of all related-party 

transactions that meet the threshold would 

not be meaningful. Instead, the combined 

annual report will disclose the percent of 

advances to members an officer of which 

serves as a Bank director, and list the top ten 

holders of advances in the Bank System and 

the top five holders of advances by Bank, 

with a further disclosure indicating which of 

these members had an officer that served as 

a Bank director. The combined financial 

report will also disclose the top ten holders 

of advances in the Bank System by holding 

company, where the advances of all affiliates 

within a holding company are aggregated. 

B. Biographical information. The 

biographical information required by Items 

401 and 405 of Regulation S–K, 17 CFR 

229.401 and 405, will be provided only for 

members of the OF board of directors, 

including the Bank presidents, the Chair and 

Vice-Chair of the board of directors of each 

Bank, and the Chief Executive Officer of OF. 

C. Compensation. The information on 

compensation required by Item 402 of 

Regulation S–K, 17 CFR 229.402, will be 

provided only for Bank presidents and the 

CEO of the OF. Since stock in each Bank 

trades at par, the OF will not include the 

performance graph specified in Item 402(1) of 

Regulation S–K, 17 CFR 229.402(1). 

D. Submission of matters to a vote of 

stockholders. No information will be 

presented on matters submitted to 

shareholders for a vote, as otherwise required 

by Item 4 of the SEC’s form 10–K, 17 CFR 

249.310. The only item shareholders vote 

upon is the annual election of directors. 

E. Exhibits. The exhibits required by Item 

601 of Regulation S–K, 17 CFR 229.601, are 

not applicable and will not be provided. 

F. Per share information. The statement of 

financial information required by Items 301 

and 302 of Rule S–K, 17 CFR 229.301 and 

302, is inapplicable because the shares of the 

Banks are subscription capital that trades at 

par, and the shares expand or contract with 

changes in member assets or advance levels. 

G. Beneficial ownership. Item 403 of Rule 

S–K, 17 CFR 229.403, requires the disclosure 

of security ownership of certain beneficial 

owners and management. The combined 

financial report will provide a listing of the 

ten largest holders of capital stock in the 

Bank System and a listing of the five largest 

holders of capital stock by Bank. This listing 

will also indicate which members had an 

officer that served as a director of a Bank. 

The combined financial report will also 

disclose the top ten holders of Bank stock in 

the Bank System by holding company, where 

the Bank stock of all affiliates within a 

holding company is aggregated. 

■ 4. Add part 1274 to subchapter D to 

read as follows: 

PART 1274—FINANCIAL STATEMENTS 

OF THE BANKS 

Sec. 

1274.1 Definitions. 

1274.2 Audit requirements. 

1274.3 Requirements to provide financial 

and other information to FHFA and the 

OF. 

Authority: 12 U.S.C. 1426, 1431, 4511(b), 

4513, 4526(a). 

§ 1274.1 Definitions. 

For purposes of this part: 

Audit means an examination of the 

financial statements by an independent 

accountant in accordance with generally 

accepted auditing standards for the 

purpose of expressing an opinion 

thereon. 

Audit report means a document in 

which an independent accountant 

indicates the scope the audit made and 

sets forth an opinion regarding the 

financial statement taken as a whole, or 

an assertion to the effect that an overall 

opinion cannot be expressed. When an 

overall opinion cannot be expressed, the 

reasons therefor shall be stated. 

Bank written in title case, means a 

Federal Home Loan Bank established 

under section 12 of the Bank Act (12 

U.S.C. 1432). 

Bank System means the Federal Home 

Loan Bank System, consisting of the 

twelve Banks and the Office of Finance. 

FHFA means the Federal Housing 

Finance Agency. 

Financing Corporation or FICO means 

the Financing Corporation established 

and supervised by FHFA under section 

21 of the Bank Act (12 U.S.C. 1441). 

Office of Finance or OF has the same 

meaning as set forth in § 1273.1 of this 

chapter. 

§ 1274.2 Audit requirements. 

(a) Each Bank, the OF, and the FICO 

shall obtain annually an independent 

external audit of and an audit report on 

its individual financial statement. 

(b) The OF audit committee shall 

obtain an audit and an audit report on 

the combined annual financial 

statements for the Bank System. 

(c) All audits must be conducted in 

accordance with generally accepted 

auditing standards and in accordance 

with the most current government 

auditing standards issued by the Office 

of the Comptroller General of the United 

States. 

(d) An independent, external auditor 

must meet at least twice each year with 

the audit committee of each Bank, the 

audit committee of OF, and the FICO 

Directorate. 

(e) FHFA examiners shall have 

unrestricted access to all auditors’ work 

papers and to the auditors to address 

substantive accounting issues that may 

arise during the course of any audit. 

§ 1274.3 Requirements to provide financial 

and other information to FHFA and the OF. 

In order to facilitate the preparation 

by the OF of combined Bank System 

annual and quarterly reports, each Bank 

shall provide to the OF in such form 

and within such timeframes as FHFA or 

the OF shall specify, all financial and 

other information and assistance that 

the OF shall request for that purpose. 

Nothing in this section shall contravene 

or be deemed to circumscribe in any 

manner the authority of FHFA to obtain 

any information from any Bank related 


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Federal Register / Vol. 75, No. 84 / Monday, May 3, 2010 / Rules and Regulations 23167 

to the preparation or review of any 

financial report. 

Dated: April 26, 2010. 

Edward J. DeMarco, 

Acting Director, Federal Housing Finance 

Agency. 

[FR Doc. 2010–10075 Filed 4–30–10; 8:45 am] 

BILLING CODE P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R06–OAR–2007–0993; FRL–9144–4] 

Approval and Promulgation of 

Implementation Plans; New Mexico; 

Interstate Transport of Pollution 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Withdrawal of direct final rule. 

SUMMARY: On April 8, 2010 (75 FR 

17868), EPA published a direct final 

rule approving New Mexico State 

Implementation Plan (SIP) revisions that 

addressed one element of the ‘‘good 

neighbor’’ provisions of the Clean Air 

Act (CAA) for the 1997 ozone standards 

and the 1997 PM2.5 standards. The 

direct final action was published 

without prior proposal because EPA 

anticipated no adverse comments. EPA 

stated in the direct final rule that if EPA 

received adverse comments by May 10, 

2010, EPA would publish a timely 

withdrawal in the Federal Register. EPA 

subsequently received timely adverse 

comments on the direct final rule. 

Therefore, EPA is withdrawing the 

direct final approval. EPA will address 

the comments in a subsequent final 

action based on the parallel proposal 

also published on April 8, 2010 (75 FR 

17894). As stated in the parallel 

proposal, EPA will not institute a 

second comment period on this action. 

DATES: The direct final rule published 

on April 8, 2010 (75 FR 17868), is 

withdrawn as of May 3, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Emad Shahin, Air Planning Section 

(6PD–L), Environmental Protection 

Agency, Region 6, 1445 Ross Avenue, 

Suite 700, Dallas, Texas 75202–2733, 

telephone 214–665–6717; fax number 

214–665–7263; e-mail address 

shahin.emad@epa.gov. 

List of Subjects in 40 CFR Part 52 

Environmental protection, Air 

pollution control, Incorporation by 

reference, Intergovernmental relations, 

Ozone, Particulate matter, Reporting 

and recordkeeping requirements, 

Volatile organic compounds. 

Dated: April 24, 2010. 

Al Armendariz, 

Regional Administrator, Region 6. 

■ Accordingly, the amendments to 40 

CFR 52.1620 published in the Federal 

Register on April 8, 2010 (75 FR 17868), 

which were to become effective on June 

7, 2010, are withdrawn. 

[FR Doc. 2010–10233 Filed 4–30–10; 8:45 am] 

BILLING CODE 6560–50–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 82 

[EPA–HQ–OAR–2009–0351; FRL–9144–5] 

RIN 2060–AP62 

Protection of Stratospheric Ozone: The 

2010 Critical Use Exemption From the 

Phaseout of Methyl Bromide 

AGENCY: Environmental Protection 

Agency (EPA). 

ACTION: Final rule. 

SUMMARY: This final rule authorizes uses 

of methyl bromide that qualify for the 

2010 critical use exemption and the 

amount of methyl bromide that may be 

produced, imported, or supplied from 

existing pre-phaseout inventory for 

those uses in 2010. EPA is taking action 

under the authority of the Clean Air Act 

to reflect a recent consensus decision 

taken by the Parties to the Montreal 

Protocol on Substances that Deplete the 

Ozone Layer at the Twentieth Meeting 

of the Parties. 

DATES: This rule is effective on May 3, 

2010. 

ADDRESSES: EPA has established a 

docket for this action identified under 

EPA–HQ–OAR–2009–0351. All 

documents in the docket are listed on 

the http://www.regulations.gov site. 

Although listed in the index, some 

information is not publicly available, 

e.g., CBI or other information whose 

disclosure is restricted by statute. 

Certain other material, such as 

copyrighted material, is not placed on 

the Internet and will be publicly 

available only in hard copy form. 

Publicly available docket materials are 

available only through http:// 

www.regulations.gov or in hard copy. To 

obtain copies of materials in hard copy, 

please call the EPA Docket Center at 

(202) 564–1744 between the hours of 

8:30 a.m.–4:30 p.m. E.S.T., Monday– 

Friday, excluding legal holidays, to 

schedule an appointment. The EPA 

Docket Center’s Public Reading Room 

address is EPA/DC, EPA West, Room 

3334, 1301 Constitution Ave., NW., 

Washington, DC. 

FOR FURTHER INFORMATION CONTACT: 

Jeremy Arling by telephone at (202) 

343–9055, or by e-mail at 

arling.jeremy@epa.gov or by mail at U.S. 

Environmental Protection Agency, 

Stratospheric Protection Division, 

Stratospheric Program Implementation 

Branch (6205J), 1200 Pennsylvania 

Avenue, NW., Washington, DC, 20460. 

You may also visit the Ozone Depletion 

Web site of EPA’s Stratospheric 

Protection Division at http:// 

www.epa.gov/ozone/strathome.html for 

further information about EPA’s 

Stratospheric Ozone Protection 

regulations, the science of ozone layer 

depletion, and related topics. 

SUPPLEMENTARY INFORMATION: This final 

rule concerns Clean Air Act (CAA) 

restrictions on the consumption, 

production, and use of methyl bromide 

(a Class I, Group VI controlled 

substance) for critical uses during 

calendar year 2010. Under the Clean Air 

Act, methyl bromide consumption 

(consumption is defined under the CAA 

as production plus imports minus 

exports) and production was phased out 

on January 1, 2005, apart from allowable 

exemptions, such as the critical use 

exemption and the quarantine and 

preshipment (QPS) exemption. With 

this action, EPA is authorizing the uses 

that qualify for the 2010 critical use 

exemption as well as specific amounts 

of methyl bromide that may be 

produced, imported, or supplied from 

pre-phaseout inventory for critical uses 

in 2010. 

Section 553(d) of the Administrative 

Procedure Act (APA), 5 U.S.C. Chapter 

5, generally provides that rules may not 

take effect earlier than 30 days after they 

are published in the Federal Register. 

EPA is issuing this final rule under 

section 307(d)(1) of the Clean Air Act, 

which states: ‘‘The provisions of section 

553 through 557 * * * of Title 5 shall 

not, except as expressly provided in this 

section, apply to actions to which this 

subsection applies.’’ Thus, section 

553(d) of the APA does not apply to this 

rule. EPA is nevertheless acting 

consistently with the policies 

underlying APA section 553(d) in 

making this rule effective on May 3, 

2010. APA section 553(d) provides an 

exception for any action that grants or 

recognizes an exemption or relieves a 

restriction. This final rule grants an 

exemption from the phaseout of methyl 

bromide. 

Table of Contents 

I. General Information 

Regulated Entities 

II. What is methyl bromide? 


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